Low gas prices have down side for economy

Thursday, January 21, 2016

Lower gas prices have made life easier for many of us in rural America, living many miles from work or the grocery store.

But Southwest Nebraskans know better than most the economic cost that accompanies those lower prices, the loss of many jobs and income from oil wells that aren't economic to keep in operation.

The stock market knows it as well, turning in one of the worst starts in many years.

We saw news stories about "gas wars" elsewhere, driving prices as low as 47 cents a gallon, but we're unlikely to see prices like that in our neighborhood any time soon.

Fuel prices are a great illustration of the forces of supply and demand, with the United States having more oil than it's had in at least 80 years, and the world oil supply expected to exceed demand by 1.5 million barrels a day.

Why is there so much oil?

For one, the high prices of years past made it practical for drillers to develop new technologies such as fracking and shale oil to increase the supply.

Middle Eastern countries have held production high, however, some saying to force American producers to cut back. Plus, sanctions will soon be lifted on Iran, allowing more of that country's oil to flow into the world market.

While lower oil prices should be good for the economy in the long run, the current price -- $26 today -- has the stock market worried that the economic slowdown in places like China will reduce the demand even more.

Banks may also feel the pain if energy companies are unable to service debt they incurred to finance drilling in North Dakota, Texas and even Southwest Nebraska.

The forces of supply and demand generally will reach equilibrium eventually, and experts expect oil to do just that as producers cut back and customers use up the excess supply.

Ideally, a price of $60 would keep production humming without raising fuel prices too high, according to experts.

Meanwhile, let's just enjoy the low gasoline prices while we can.

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