Gasoline prices will stay at low levels for at least the next five years, and by January the national average will be under $2 a gallon.
That was the message delivered by energy economist Bernard Weinstein to the Arizona Trucking Association, which met in Tucson this weekend.
“While that’s not good for Texas or North Dakota, it’s good for just about everyone else,” Weinstein said in an interview after his speech. “That’s the new reality of the oil and gas industry.”
The current rate of production is more than 2 million barrels higher than demand and, so far, OPEC has refused to adjust its production levels, which have been flat for more than seven years, said Weinstein, associate director of the Maguire Energy Institute in Dallas.
“All increase in oil production has come from North America, mainly the U.S.,” he said. “OPEC says, ‘We’re not responsible for the glut of oil in the market. Let the Yankees adjust.’”
Since 2008, there has been a 100 percent increase in oil production — mainly in the United States — as a result of shale extraction, he said.
Global production of oil is about 93 million barrels a day, with consumption of less than 91 million barrels a day.
For the trucking industry, the relief in pump prices has been dramatic.
“Over-the-road truckers are in hog heaven,” Weinstein said. “They’re paying one-third less than a year ago for diesel.”
Truckloads are also increasing, and 2016 is expected to break the record of originating loads set back in 2006 when 700 million loads were shipped.
Industry experts expect to originate 725 million loads next year.
But while consumers are relieved, the drop has three big impacts on the U.S. economy, Weinstein said.
- In the last 18 months, more than 200,000 jobs have been lost as a result of falling oil prices.
- Manufacturing activity related to the oil industry and suppliers to the industry has seen a large drop in business.
- States with a large reliance on oil and gas will see a substantial loss in taxes paid by those companies. Texas, for example, gets between 15 and 20 percent of its revenue from the oil and gas industry.
With no inkling that OPEC intends to budge, cheap fuel prices will be enjoyed by consumers for a while.
Saudi Arabia has the financial wherewithal to hold out for a while, with about $500 billion in revenue, but oil-producing countries such as Nigeria and Venezuela do not.
“Even if the lack of demand continues, the U.S. economy is in relatively good shape,” Weinstein said. “That’s not the case for other parts of the world.”
