In case you haven’t noticed during a recent visit to a gas station, oil prices are in free-fall, down roughly $30 dollars per barrel since late June. And while that puts a bit of a damper on the shale oil drilling boom in states like North Dakota, Texas, West Virginia and Pennsylvania, among others, it’s great news for consumers.
According to Michael Levi, author of The Power Surge: Energy, Opportunity, and the Battle for America’s Future, “a sustained $30 decline in oil prices translates into more than $200 billion a year of savings for U.S. consumers through lower prices for gasoline, diesel, jet fuel and home heating oil.”
But the impact of the drastic drop in oil prices varies from state to state.
Levi, writing for Politico Magazine, noted that a recent study “suggests that a sustained 25 percent decline in oil prices could boost employment by nearly 1 percent in Wisconsin, Minnesota, and Tennessee, while slashing it by more than a full percentage point in Wyoming, North Dakota and Oklahoma, with other states falling in between. States that produce far more oil than they consume, like Texas, will suffer; states such as California, which are much more common, will get an economic boost.”
According to the study, Alabama, a state that consumes more oil than it produces, will experience a 0.56 percent drop in unemployment if the current oil prices are sustained.
Late last week the Dept. of Labor announced that Alabama’s seasonally adjusted September unemployment rate dropped to 6.6 percent, down from 6.9 percent in August. As a result, there were 140,674 unemployed Alabamians last month, compared to 147,248 in August. In other words, the 0.3 percent drop in unemployment resulted in there being roughly 6,500 less Alabamians unsuccessfully searching for jobs. The drop in oil prices could potentially double that number, inching the state ever closer to the 5.2 percent rate that is commonly referred to as “full employment.”
But it is hard to say at this point whether oil prices will stay this low. Two of the primary reasons for the price drop are low demand for oil brought on by a weak global economy and Saudi Arabia’s apparent decision to not cut production in spite of the drop in demand. Increased production in the U.S. is a factor, as well, although to a lesser degree at this point.
“After three years of relatively stable oil prices, oil price volatility is back,” Levi wrote of the uncertainty. “Small shifts in market perceptions can drive big moves in oil prices. This is the new normal to which the U.S. economy and American politics must adapt.”
One thing is for certain, though: as the oil markets shift globally, the local economy here in Alabama will be impacted in a substantial way, as well.
Follow Cliff on Twitter @Cliff_Sims
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