Recent visits to the gas station have been a little less painful, and while no one can be faulted for enjoying the cost savings (about 40 cents/gallon from a year ago, according to the Energy Department), there are some further-reaching ramifications.
Lower oil prices, caused by an excess of supply, have led to oil-dependent states and nations struggling to address budget shortfalls as oil companies cut production and staff. Looking both domestically and around the world, we see the following:
- In the U.S, oil production is projected to decrease by 700,000 barrels/day. The hardest hit areas will be Alaska and North Dakota, which face $3.5 and $1 billion budget shortfalls.
- The Canadian Association of Petroleum Producers is conservatively projecting that lower oil prices and the resulting production slow-downs have already contributed to the loss of at least 140,000 jobs.
- In South America, The International Monetary Fund predicts that inflation in Venezuela will surpass 700 percent in 2016, which again, can be directly attributed to losses from state-owned oil companies.
- Even though 2016 is projected to bring an increase in oil demand throughout Europe, the Russian economy will contract due to the impacts of falling oil prices.
- Some of the older oil wells in China feature production costs as high as $40/barrel. As prices increase and these costs become uncompetitive, more will be shut down, escalating unemployment in an already slowing economy that, due its size and historical growth, directly impacts numerous others around the world – including the U.S. and more specifically, it’s industrial sector.