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Texas Oil Prices are Dropping

The price of crude oil has been continuing to fall over the last few days. By some benchmarks, crude oil prices in Texas and globally are near to a four year low. For example, West Texas Intermediate (“WTI”) was recently reported at $81.84 per barrel, well below the $100 to $120 per barrel evident more recently. In fact the WTI price closed down 4.77% recently, which is a substantial decrease. The current Brent Crude Oil price of $85.04 represents a decrease of $3.85 or 4.53%.

What is happening here? For many years in the past, conflict in the Middle East caused prices to increase. Currently, due certainly to the advances of ISIS but also because of other factors, the Middle East is in great turmoil, yet prices are sliding. Probably the general and economic malaise in this country has a lot to do with the slide in oil prices. Although the federal government minions feed us sound bites about how the economy is doing better, people out here in flyover country know better. Recently, President Obama touted the decreased unemployment rate. What he does not say, however, is that so many people who want to work have left the workforce that the resulting unemployment rate looks artificially better. Not only is the poor economic condition of our country a factor, the incredible threat of an Ebola epidemic, with its potentially catastrophic personal and economic consequences, is also playing a part.

Lower crude oil prices mean that gasoline is cheaper at the pump. However, there are some major negative impacts. For one thing, if the price of oil stays down below a certain level, oil exploration and production will decrease. Oil wells that can make a profit when oil is $100 per barrel may be losing money when oil is $85 per barrel and those wells may be plugged. Additionally, most of the oil and gas exploration in this country is done by small, independent oil and gas companies. When the price of oil declines, the smaller companies, with smaller capital reserves than the large oil companies, can no longer afford exploration activities. Taken together, both these reasons result in a decrease in domestic production of oil which results in larger imports from unstable countries in the Middle East
On a more personal level, lower oil prices and decreased exploration and production means that the many people who depend on oil and gas royalties to live on are going to need to tighten their belts. The vast majority of royalties go to individuals, not corporate conglomerates. For many of these individuals, the royalties constitute retirement income that is a necessary supplement to meager Social Security payments. For everyone in this situation, the lower prices are truly not good news.