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From American Jobs to the Banking Industry: Who Will Unusually Low Oil Prices Hurt Most?

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Two weeks ago, I took an immense amount of criticism in the comments section on both the IVN page and Facebook site for the article, 3 Reasons Why Lower Gas Prices Are Not A Good Thing.

Representing many of the comments was a highly liked one from Facebook:

It effects the rich negatively, but enriches the middle and lower classes. Was that ad paid for by the Russians?

In fairness, I’m not totally sure that many got past the title before they commented, because the article plainly stated that Americans would get an extended Christmas from the lower gas prices — but then problems would start to settle in from the backlash of lower oil prices.

But, in response to many of the comments, I made a personal promise that I would keep tabs on this issue for the next six months and give credit (and criticism) where due.

So what’s happened in the last two weeks?

New Beige Book

Eight times a year, the Federal Reserve releases its Beige Book, containing all available (or measured) economic data for the various regions of the Fed. This is considered the gold standard of economic forecasting, with Wall Street analysts basing most of their predictions on this data.

The Christmas numbers, which were largely believed to be much higher from lower gas prices, came back flatter than expected.
The information in the Beige Book wasn’t as good as one would expect — for either the oil industry or consumers.

The Kansas City and Dallas regions of the Fed reported the worst results, as they are the two areas with greatest dependence on the oil industry.

But the Christmas numbers, which were largely believed to be much higher from lower gas prices, came back flatter than expected across the regions.

Simply put, we aren’t seeing the “extended Christmas” that I had originally projected, which could be from the same phenomenon that happened from the Economic Stimulus Act of 2008. People paid down debt, and didn’t put the money into the economy through consumption as expected.

This is still a personal win for the individual consumer — a zero-sum game for the net economy (at least in the shorter term).

Unfortunately, it will be another six weeks to see where these data trends go.

Job Losses

The world’s largest oil servicing company, Schlumberger Ltd., announced on January 15 that it will be cutting 9,000 jobs, along with a $296 million charge to fourth-quarter results.

This has been the largest of the oil field jobs lost, but even ancillary companies and workers are feeling the hit.

U.S. Steel has announced that it is laying off almost 3 percent of its North American workforce due to falling oil prices.

The Houston, Texas area is expecting at least 128,000 lost jobs, both directly and indirectly tied to oil by mid-2015, according to a senior Federal Reserve analyst.

While these layoffs have temporarily held stock prices steady, losses of this magnitude cannot continue without having a direct impact on the stock market as a whole.

The oil producing states are already starting to feel the pinch; it won’t take long for the economy as a whole to feel the burden.

Several comments to the original article included statements like, “these people need to just go find jobs like the rest of us.” And while there is an obvious truth to this, it doesn’t happen instantaneously and market reallocation does not happen overnight (as the economic theories would like us to think).

The first place that the damage will be seen is in the state unemployment trust fund balances, which will update the preceding month by the seventh day of the following month. (And yes, I realize the catastrophic irony of this — that when a person receives unemployment they are actually reducing the national debt.)

More Problems in the Banking Industry

Domestic oil producers are facing enormous debt service, and are continuing to pump, even at a loss, to make the payments. With this not being an indefinite strategy, bank losses are a real threat.

But it’s not just the over-extended oil companies that are threatening the banks; it’s the oil worker’s financed homes, cars, and purchases (along with whole communities that are dependent on the oil industry) that are compounding the problem.

The FDIC keeps exceptionally good (although not exactly easy to use) public data on the state of the American banking system. Raw data and charts can be found here, as well as the FDIC’s risk assessments for each banking area.

We have already had one major banking catastrophe in the past 10 years; I’m not sure we can handle another one.

What is the House of Saud up to?

As I have stated many times, we need to realize that this surplus of oil is from the deliberate glutting of the market by Saudi producers, and they can “flip the switch” and constrain oil production any time they choose to do so.

And then what? Gas at $6 a gallon because our domestic production has been destroyed?

The Saudi producers aren’t even profitable at these levels, and they were reaping huge profits prior to the glutting. There is a significant strategy being played out here — one the West still doesn’t fully understand.

It took years for domestic producers to “ramp up” production to the point where gas prices were lowered to $3 a gallon. How long will it take the next time oil prices surge?

Even key political issues, like the Keystone XL pipeline, have been tainted by the Saudi glut of oil. All newer oil production methods are in danger from the lower oil prices, but oil sand production (like what would be filling the Keystone XL) is one of the most expensive ways to produce oil. The economic feasibility of the program is now in question.

While I’m not a huge fan of the Keystone project, this is a decision that Americans should be making — not Saudi princes. Our economy and political process should not be the plaything of a quasi-friendly government.

Where’s the End?

When liberal and conservative media analysts agree, we probably need to take notice. The worst is yet to come.

I’m going to go out on a limb and say that the Schlumberger layoffs won’t be the worst of it. There will be larger giants felled from this oil glut.

For the American consumer, I think the worst is going to come from whenever the Saudis accomplish their plans and then resume a strategy of constraining oil. Our nation could barely handle $4 a gallon gas; I’m not sure what would happen if it reached $5 or $6 a gallon.

One way or another, we need to prepare ourselves for a wild ride.

Join the discussion Please be relevant and respectful.

The Independent Voter Network is dedicated to providing political analysis, unfiltered news, and rational commentary in an effort to elevate the level of our public discourse.


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427 comments
Peter Adams
Peter Adams

As far as the idealized American Indian lifestyle, there are just way too many people around for that to ever be viable.

Bob Funk
Bob Funk

We've already seen the low oil prices give the economy a much-needed shot in the arm.

Ray Ninness
Ray Ninness

Artificially hight prices created the growth in the Oil Industry, and the huge profits!! Mainly paid for on the backs of every citizen in the country???

Charles Loghry
Charles Loghry

Oilfield workers who are being laid off will be some of the first tofeel the negative impact, but I feel that more people will feel a positive impact. I also feel that this is a time when we should cut down on oil imports . If we could get the EPA TO ALLOW CONSTRUCTION OF REFINERIES we could then process crude more efficiently.

Joe Lewis
Joe Lewis

Personally I believe the lower prices are a direct result of the government meddling! Presidential elections coming on this next year, plus it provides false inflation, and besides, it's Been twenty years since government raised taxes on fuel, yeah... Best time to push taxes quietly up? When prices are down, DUH.

Henry Gideon
Henry Gideon

One thing for sure its not good for the oil pirates How it affects the rest of us remains to be seen.

Richard Reiss
Richard Reiss

if we had lower fuel costs back in 2008 maybe the recession would not have been so severe.....think about it: lower utility costs, gas and electricity. In face back in 2000 the gas and electricity costs soared leading to the recession that year. Lower gas = better economy thru lower operating costs...DUH

Eric Clifton
Eric Clifton

Its bad for the oil producing parts of the economy. Texas is feeling the pinch quite a bit right now.

Donald Hughes
Donald Hughes

We could do a rapid switch over. More rooftop solar has been installed in the last year and a half than in all previous years combined. If industry and government wanted to do it, it could be done in three years. Industry never will. Government is run by industry. We need to take the government back for the people.

Marg Pratt
Marg Pratt

Who will it hurt the most? Venezuela - Russia - Iran - for starters. It will not have great impact on the US industry, from what I can tell - benefits trucking, airlines, and private citizens....

Dave Broughton
Dave Broughton

Dave is why we have republicans in office right now that want to deregulate the banks and Wall Street so they can play roulette with our tax dollars......we saw how that worked out....

Dave Broughton
Dave Broughton

This crap burns me up.....its a know fact that at $40 a barrel, the dang oil companies are still making a profit and they are still getting hugh subsidies from our Govt. Besides, look for the price to go up next month as they change over to summer fuel. Why can't the SOB oil companies absorb some of that cost instead of passing it on to the consumer?

Richard O'Connell
Richard O'Connell

Joe - Can't say that I ever approved of the wars that Bush got us into - just as I have no qualms with Obama being black. He is a failed leader just as was Bush. My comments do not come from any neo nazi aryan brotherhood - but a truie American citizen. Your comments indicate you did little if any research on the subject matter or you are a radical socialist like Obama.

Marty Ragan
Marty Ragan

The oil companies pay good wages. When the profit goes down - people are laid off, production slows, and it only gives the masses a false sense of well being for a short time. There is a 'fair' point in between. (Especially since the feds take more out of each gal of gas sold, by way of taxes, than most of the oil companies earn per gal - after production costs. Which the Pres. is saying he is going to raise the fuel tax again so we can take care of bridges & roads. Where is the money going that we've been paying?)

Joe Russomanno
Joe Russomanno

richard you go on about obama and deaths of americans, uh mebbe if that good ol white boy from texas and his cronies didnt allow an attack on American soil to happen and thus wage war on a sovereign nation violating all kinds of international law, the black muslim wouldnt 1. have been elected to begin with and 2. have the opportunity to kill any americans... please get out of here with your neo nazi aryan brotherhood bullshit.

Joe Russomanno
Joe Russomanno

you keep mentioning the saudis flooding the market but neglect to point out increased production from canada and us... the beige book?! seriously?! gas prices started to drop shortly before Christmas and a significant amount of consumers already had christmas shopping done a month in advance. the koch brothers will love you.

Belinda Eastmond
Belinda Eastmond

That's the sad reality of a transitioning economy. If we can take those oil workers and put them to work on wind or solar power, they can continue to support the waitresses, the hotels, the grocery stores, and everything else a community needs. North Dakota ought to be able to do well in wind energy, couldn't it? And some of the recent breakthroughs in biofuels are very promising and don't require lots of sun twelve months of the year.

Belinda Eastmond
Belinda Eastmond

The 21st Century way to become energy independent is to develop renewable energy, of all kinds, on a scale that would let us stop burning fossil fuels for energy within a generation...five years would be better!

Belinda Eastmond
Belinda Eastmond

Absolutely! Of course, everyone knows that the fossil fuels will run out eventually, and then we'll HAVE to convert to renewables. They say things like, "there's plenty of oil left in the ground, enough for fifty years or so." So, what are our grandchildren going to do when the accessible oil runs out? Are we going to leave it to them to make the switchover, in emergency mode, when we could have done it now in a controlled fashion?

Belinda Eastmond
Belinda Eastmond

Whenever there's an economic revolution, there will be people thrown out of work. The industrial revolution replaced work-at-home spinners and weavers with miserable, poverty wage factory jobs. The rise of the automobile put buggy whip manufacturers out of business. The changes in computers put most programmers out to pasture, as businesses could go to the store and buy payroll software, inventory software, etc, off the shelf, plug it in, and use it. As one of the people put out of work by that revolution, I most certainly empathize with others in this plight! But are we going to freeze our economy at the fossil-fuel, internal-combustion family vehicle stage just because it would put a lot of people out of work if we progress? How about we find ways to test the unemployed for aptitude, and then retrain them for jobs with a future?

Gary Dickey
Gary Dickey

Well U see what happened when we put two oil tycoons in the Whitehouse. Highest gas prices ever. Yep we sure took a beating on them two racketeers

J Paul Read
J Paul Read

What? Paying lower for a necessity is a negative thing?? That's an amazing thing!

Kathleen Brooks
Kathleen Brooks

Domestic drillers will feel it first as they have to shut down operations.

Cruz Garcia
Cruz Garcia

This same thing happened when oil was discovered in Texas. Oil was being sold very cheaply and as many wells as possible were established. There was one person who tried very hard to warn the oil people to slow it way down; they wanted $$$$ so badly that they ran their wells dry. Many then went under because the cheap gas encouraged people to waste it. Now here we are again. Current over production is driving the price down but it is also using the oil up quickly. Oil companies and those on the hill who receive kickbacks are getting richer. This will keep us depending on foreign oil. Note that we use oil to manufacture a lot of our consumable goods like plastics, some meds, on and on. Those who do not learn from history are bound to repeat it.

Stoney McGerald
Stoney McGerald

Why not do like those oil rich countries, keep our oil prices low and sell high to other countries.

Victor Tab Alessandro
Victor Tab Alessandro

The real question is what is driving the impact? How does lower fuel prices "hurt" the economy? The oil companies make less profit as to city utilities and other organizations who depend on the gross margin on fuel. However, every consumer and every business who depends on the transportation of goods will benefit. Lower fuel prices are better for the vast majority of Americans! If we would be more aggressive in our pursuit of fossil fuels as well as other forms of energy, we would really be better off.

Jimmie Leeth
Jimmie Leeth

My pocket book tells me, its a good thing. Enjoy it now, cause it wont last.

Laurel Conrad
Laurel Conrad

gas guzzling cars and trucks, many trips to the stores instead of planning ahead to save gas. We are are own worst enemy. Pelosi is already talking about tax increases

Laurel Conrad
Laurel Conrad

I wonder how soon the American people will get used to the lower prices and consumption Weill increase, larger gas gussing

Victor Boshnyak
Victor Boshnyak

Банки и тюрьмы сравняем с землёй! - Banks and prisons we shall level to the ground. Just some 'Russian' perspective for you. From song: White Army, Black Baron (Белая Армия Чёрный Барон)

Jo Farmer
Jo Farmer

Let the big oil company's eat it for now...we've eat it for years....

Brad Budihas
Brad Budihas

The government is calling the low oil prices "economic terrorism" because it brings in a huge amount of tax money. With low oil prices, that tax revenue is pretty much cut in half.

Tim Barrell
Tim Barrell

All I know is, when GAS is HALF the price it WAS....I can ALMOST afford to EAT the LAST WEEK OF THE MONTH!!!

Richard O'Connell
Richard O'Connell

Bob, this woman said nothing positive about Obama. You and Joe speak like true Democrats. The difference between yourselfs and I is that I belong to no political party, do my homework and say it like is. Your problem is that niether you or Joe can argue with facts.

Dustin Butler
Dustin Butler

Bob, then why haven't retail sales increased since October when the prices dropped immensely? Thousands of field workers are being laid off. This idea that cheap products are what's best is the reason why we produce nothing in the US anymore. By that logic, why don't we just lift the trade tariffs on automobile imports and just make all of our cars in China. We would save a lot of money then and I guess you wouldn't care about those layoffs either. The end of production jobs has single handily destroyed our middle class. But I guess everyone is willing to sacrifice good production jobs for an increase in retail spending, so we can all go work at Walmart for minimum wage instead.

Frankie Teague
Frankie Teague

Guess it will hit oilfield jobs the hardest companies will just lay people off company won't lose money you can bet your dollar on that.

Joe Rock
Joe Rock

I live in a community that lives and dies by tourism. Lower gas prices will help communities like mine possibly recoup a few of the jobs lost due to inflated oil prices. Simply put in regard to the oil companies... screw the greedy bastards!!!!

Bob O'Boyle
Bob O'Boyle

Dustin, you keep repeating the same talking point...do you have citation of statistics or data to back your assertions?

Richard Schmale
Richard Schmale

Not 100% trusting of IVN which has it's own agenda just as the Parties have theirs.

Richard Schmale
Richard Schmale

Point being that $1.78 per gallon gasoline didn't ruin the oil industry 6 years ago and $2.00 gasoline won't ruin it now...

JohnRussell
JohnRussell

Oh, some people earned this reduction in price, it is not a gift and the benefits are not Christmas.

The people with nosebleeds, flaming tap water, and weird cancers near fracking sites eaned this. Willing or unwilling the people on the front lines of the fracking investment bubble paid a dear price for wells to be fracked, capitalized, sold to investors, it did not occur to the investors that they were flooding the market and by doing so it might eventually force an OPEC state of taking a desperate action to stop this process, assuming that there was not collaboration between the US and the Sauds. But the people by these well sites they didn't just earn this "Christmas", they paid for it with their health and real estate values.

The Americans who bought hybrid vehicles, electric cars, solar panels, the investors who created wind farms and solar farms created perhaps the need for the Saudis to make oil and gas so cheap they are not making a profit so that other Americans stop considering these options that may threaten not just them but the entire petroleum based investment community and every oil producing nations... Those Americans by their actions as consumers created that fear and created enough leverage from consumers to force the price of oil down. If that is not earning it I do not know what else earning it could be.

Calling it a "gift" (Greek or otherwise) creates an illusion of consumer disempowerment when may of us said "fine, keep your oil" and did what we could as consumers to use much less of it. In a system of both political parties hopelessly corrupted we exerted our power as consumers and our power as voters where it actually still matters (at the municipal level).

When looked at that more empowering way the story would not be "Saudis give Greek gift to American Economy" but rather "American consumers used their power to drive the oil industry to desperation to actually lower their price or lose their market completely." Yes, Amerian consumers did earn that by exercising their power as consumers to make this possible.

For what so many American consumers did to force the Sauds to have a fire-sale these same consumers will get cheaper gasoline but also cheaper anything that needs to be transported as well as cheaper air-fair.

The danger of this is consumers may become complacent and not be actively seeking to get off fossil fuel for a while but the equation has changed, with the knowledge of the internet, solar panels and wind turbines getting ever cheaper, and more Americans making Amazing things on their own to lower energy costs or generate it, many can make the parts they need with a 3-d printer.

The oil and gas prices can go up higher again but the threshold at which they can raise the price and not trigger a consumer reaction to switch to fuel alternatives is now much lower and the falling of oil prices will only force the makers of solar panels and the like to commit to the R&D and production methods/costs to come out with cheaper products.

You are an organizational psychologist whicheans you should have an understanding of crowd psychology. I feel strange trying to explain something to you that you should know better than a former street kid from Jersey with a degree in fine art. Your articles are getting the reaction they are getting because you have failed to understand your audience. I will try to help.

Once upon a time when someone called themselves an independent they were usually centrists who beleived sincerely but naively that there were good and bad politicians in both parties and they did feel empowered by their vote to steer the country to the left or right when they were convined that one side was taking things too far.

Since then the Democrat party in the 90's moved beyond the center to the near-right as the Republicans moved much further to the right. Seriously, a Democrat called too liberal today commonly has positions that would have been mainstream for Republican positions in the 1970's.

Progressives were disenfranchised from the Democrats and centrists who once called themselves independents joined the Democrats and are actually leading the agenda for that party.

The people who identified as independents changed after this. Conservative Republicansnwho were against NeoConservatism and labeled RINO's by the tea party during the primaries and purged from the Republican Party who moved too far to the right for them. As the democrats moved even further to the right these disaffected and purged Republicans joined the ranks of Democrats as even more people on the left lost faith in a party which promised progressives change but even with a supermajority and no more excuses in their inability to get things done Democrats clearly demonstrated it was the corporate campaign contributors that were calling the shot and not the progressives they got to rally to their support.

So the kind of person that calls themselves an Independent today is a different breed. They are not centrists necessarily. Some were libertarians who joined with the Tea Party or supported Ron Paul but realized that their activism was being used as a tool by corporate Neocons and dropped out. Some were left wing occupiers and left progressives tired of voting for a party of near right corporatists because it's the lesser of two evils with far right corporatists. They don't even believe there is a lesser of two evils anymore and why should they when the party they used to vote for stands behind the NDAA, appoints people behind the mortgage backed securities bubble to the cabinet, the wars go on while the NSA works feverishly with presidential support to create a popular cellphone APP that will make your I-phone sprout legs and crawl up our ass when we sleep just make sure we are not terrorists through intestinal flora analysis. (Sarcasm)

What the "independents" of today have in common is that they feel neither party represents anyone but corporations. That's who calls themselves independents today, you are writing to an audience of Independents that existed ten years ago and that would have given your article accolades.

You are writing to an audience that does not feel either party empowers them in any way. They are not going to whine about it, they have already taken action at local level and in social networks to create barter networks, community markets, food coops with local farmers, and are seeking to be free and express their power through consumer behavior and local government. Your point reduces them to an illusion of powerlessness they will not accept any more, the Islamophobia button of Saudi plots to destroy American fossil fuel independence will just get them mad at you because many of these independents have done double the number of tours of Duty than any Nam vet ever did and has concluded on their own that the real enemy of freedom and starters of these wars (and funding/training/arming terror groups) are in the halls of our government, corporate boardrooms, or looming above the trading floors in the largest banks and exchanges toasting occupiers with glasses of champaign. the wedge issues don't divide them anymore.

As an organizational psychologist consider your audience and consider if the point you are making has any relevance to the perspective of these current independents. Use your fine mind to look for news that will enhance their effect as consumers and encouragingly acknowledge their accomplishments and real power, help them to strategize in ways that give them leverage. Or if that compromises your integrity because you don't feel they have that power or fear that they should have that power then write articles for centrist rank-in-file Democrats that will read your article and nod their heads in agreement.

Bob O'Boyle
Bob O'Boyle

Mary, you said something positive about President Obama, which set Richard wingnut off on a diatribe. Thanks for exposing the motivation of his posts.