As I’m sure you are joyfully aware, average gas prices have been rapidly decreasing over the past few months. The average U.S. price per gallon of gasoline is now $2.30 per gallon, with many regions of the country coming in below that.
Hooray! Or… not?
Yes, lower gas prices can have an immediate impact on your finances, in a positive way. Unfortunately, there ain’t no free lunch. Not only are these low gas prices not here to stay, but the actions that we take now are going to impact prices in the near future. And they will come back with a vengeance.
You see, we Americans are pretty damn shortsighted. Low gas prices are like a chocolate chip cookie that someone sets in front of us on our desk in the morning. After looking around to ensure the bait is not a prank and there is no video camera on us for a social experiment, we gobble that shit right up.
And so it is with gasoline.
We don’t just start driving more leisurely and frequently – oh, no. We also purchase bigger, heavier, slower, dumber vehicles as well – large truck and SUV sales have been skyrocketing while alternative fuel vehicle sales have been declining in recent months.
Sales of the Jeep Cherokee were up 66.6 percent compared to November 2013, according to data from Motor Intelligence. The GMC Sierra pickup saw a 57 percent increase in sales. And sales of Dodge Ram and Chevrolet Silverado pickups were up more than 20 percent each… Meanwhile, sales of alternative fuel vehicles were down 7.2 percent last month to 42,221.
When consumers stay away from the most fuel-efficient vehicles, there is a lack of innovation and investment in new vehicle technology and design. If we keep showing that we’re mice willing to take the bait of big dumb vehicles and temporarily low gas prices, then automakers have no incentive to produce more efficient vehicles.
And just as with the cookie example (think eating a few every day), we don’t benefit from our gluttonous consumption. Increased consumption tears up our roads, clogs are streets, and puts out ever more CO2. And more drive time (and more aggressive driving) results in more driving deaths. It’s been estimated that a $2 drop in gasoline price can translate to about 9,000 road fatalities per year in the U.S.
Furthermore, in buying more gas, we’re really hurting the American economy.
What? That’s ridiculous. More consumption equals better economy, right?
There is an interesting back-story here that everyone should be made aware of (if you haven’t connected the dots already). As the price for crude oil had increased north of the $100/barrel, many U.S. producers got into the shale oil extraction game, because it was profitable for them to do so. This increased investment and production increased output and supply and kept prices reasonable. Seeing this as a huge market share threat, the Saudi’s have decided to drop their prices to extremely low levels in order to put many of these U.S. producers out of business. Many American companies were profitable at $100+ per barrel and this led to a boom in U.S. oil production. Few, if any, are profitable at $40/barrel.
The state-owned Saudi Aramco is by far the world’s most valuable company – sitting on 30 trillion in reserve cash and oil. They can afford lower temporary revenue in order to kill off competition and increase their market share.
And guess what – it’s already working. Schlumberger (headquartered in Houston) is cutting about 9,000 jobs on the back of lower anticipated exploration and production spending due to the low prices. Baker Hughes is cutting 7,000. That already brings the total job loss to north of 30,000 as Shell, BP, ConocoPhillips, Pemex, Halliburton, Apache, and Suncor have also laid off U.S. workers. And the worst has yet to come – many more layoffs are on the way.
The result of this disinvestment is that you will see a significant decline in U.S. oil production in the coming year as many producers will go out of business and slowly tap out their active rigs. U.S. produced oil supply will dramatically decline, while Saudi/OPEC market share will increase.
What happens to prices when supplies plummet and demand goes up?
We’ll be right back to $3-4 per gallon (maybe more) in no time. Except more oil sales will be going to the Saudi’s and less of it to American’s, who won’t have the workforce or investment to keep up with demand. This is no joke or conspiracy theory, folks. It’s real. And it’s happening RIGHT NOW.
So… if you are driving more often due to low prices or plan on buying an all-wheel drive or behemoth steel monstrosity, you’re only hurting yourself, your environment, and your country.
Meanwhile, now is the perfect time to write your Congressman or woman to increase the gas tax in these times to close the gap when prices are artificially low to dissuade the type of blind gluttonous consumption we are seeing – and improve our roads, safety, environment, and economy at the same time.