IVN News

4 Reasons Oil Prices Are At a 13-Year Low and Will Continue to Drop

Paid Advertisement

I’ve taken an incredible ration of bad commentary over my half-dozen or so articles on the oil glut’s impact on the economy.

But one constant remains, the economy as a whole is still not benefiting from the lower oil prices — the stock market continues its slide, the Fed chair issues new warnings, and some speculators are even predicting $10 per barrel of oil.

Why has this glut continued for so long? Four reasons are keeping it alive and well — and have placed oil producing nations in a position where they can’t collude on production amounts to prop up prices.

1. The House of Saud Started it, But Even They Are Suffering Now

The House of Saud started the glut in an effort to destroy newer oil technologies, with the full intention of jacking up prices once tar oil, shale oil, and other new technologies had become fully marginalized. A secondary objective was to get oil low enough to stifle the development of alternative fuels, making the opportunity cost for development too high for a reasonable cost-benefit analysis.

But ‘turning on the pumps full blast’ has also hurt the House of Saud. In a kingdom where they ruled from both fear and the provision of economic ‘goodies’ to their people, they’ve lost the ability to maintain the largess expected from their population since the 1980s.

2. Ruble Stabilization Makes Russia the World’s Number 1 Exporter

The continued Russian Ruble Crisis is forcing the Russians to stabilize their own economy by injecting American dollars. Almost all worldwide transactions in oil are conducted in USD; Russians desperately need this boost to their currency reserves to prop up their own economy. Russia is now the world’s number 1 producer and exporter of oil and natural gas, with seemingly no end in sight to their policy of pumping.

3. Iran to Pump at Any Price to Pay for Their Expansion Projects

With most sanctions lifted, assets unfrozen, Iran is on a spending spree — and unfortunately it’s not with us. Signing deals with China, India, and the EU, Iran is on one of the biggest spending sprees in Middle East history, primarily on infrastructure and capital development.

A problem for Iran is they don’t have the money to pay for it; they must pump at any price, even a loss, to gain the USD to pay for the expansion.

Iran has tried to coax the EU and other markets into paying for their oil in euros, but it remains unclear (and unlikely) that this will happen. Petrodollars are still king, which politically and financially irritates the Iranians because of the transaction costs and fluidity of the global currency markets.

4. Domestic Companies Are Pumping for Debt Service

At home, domestic companies (including the smaller ‘wildcat firms’) are having to pump exclusively to pay debt service. In 2010, the domestic oil producers had over $200 billion in debt, largely accumulated because of expanding into newer technologies, expanding production, and opening new oil territories.

This puts debt service in the billions of dollars a month, even at generous rates and terms, equating to millions of barrels of oil each day being pumped solely for debt service.

Big Win for the Consumer at the Pump; Economy as a Whole in Crisis

Consumers have loved the lower gas prices at the pump. Most government reports are showing that household debt is decreasing — people are paying off debts with the money saved.

But the economy as a whole just isn’t doing well. And continues to slide.

With projections of a bear market for 2016, as well as Fed Chair Yellen’s most recent warnings, Americans need to personally, financially, and politically brace themselves for the possibility of a bad year.

Who knows what the outcome will be, but the crystal ball of economics is not showing a rosy picture as it stands today.

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.


Learn More About IVN

199 comments
Peggy Fowler Dodson
Peggy Fowler Dodson

I think gas prices are down because it's election year. Once that's over, prices will rise again. You can bank on that!

Nelson Edward Gomez
Nelson Edward Gomez

This post is wrong OBAMA WANT to raise the taxes on gas , to pay for the Muslim men coming from SYRIA. These men are Muslim terrorists. No refugees !

Greg Childre
Greg Childre

Susanne Nelson Charles only makes sense to Charles. And then only 1%!

James L. Butler
James L. Butler

Correction $300 trillion world debt vs $80 trillion world GDP and adding $3.6 dollars debt for every $1 gdp.

Larry Rundle
Larry Rundle

Funny how the gas went down, but the prices of things like food that went up because of the rising fuel costs haven't moved

Debbie Taylor Shivers
Debbie Taylor Shivers

David Gulliksen Seriously, what company, I'm trying to do something but the only policies I found with low deductibles had high premiums.

Mindy Wirick
Mindy Wirick

Let's see, Obama is to blame for low gas prices. Seven years ago, Obama was blamed for high gas prices. So when gas prices are high again, it will be Obama's fault, High, low, high, low, high. Bad Obama! Bad, bad!

Lee Molstre
Lee Molstre

Wait until summer, people will be traveling more and have more cash in hand to spread across the gaunlet, rather than spending it all on gas, etc... The more people travel and spend else where the better the economy will balance out. Might even create a few oil jobs that we have here in the U.S. We are less dependent on foreign oil than probably ever. I would bet the market is stagnant because the billionaire babies are feeling the heat.

Lee Molstre
Lee Molstre

Buy American products, I know it is hard to find, but it will keep our inside economy strong and job growth going.

Doug Osborne
Doug Osborne

Seriously? My family did the right thing years ago, and our cars sip gas. We're saving enough a month to buy another few gallons of cheap gas. The scared children who are our institutional investors have driven down the value of my retirement funds enough to set back our retirement by years, simply because they can't weather a little uncertainty. Damn them.

Charles George
Charles George

While I'm enjoying the low cost. What happens if the price falls to a level where it is no longer profitable to drill or refine. Or distribute. $100 a barrel oil sounds just fine

Randall Ayers
Randall Ayers

and Obama does nothing to control any of this cause it plays into his plans and after all it's an election year and it does make him look good and in doing so it makes the democrats look good. while it makes a new carbon tax seem more palatable.

Tom B Ero
Tom B Ero

Not in Youngstown Ohio. Lyden oil company just raised its prices 20cents a gallon . New Mexico and Virginia prices continue to drop. No Simple Economics just GREED in YTOWN

Carol Rannow
Carol Rannow

So why aren't prices going down. It's cheaper to ship and transport now?

William Smith
William Smith

Janet Barry they are not selling at a loss they would be ok but I would say most of their profits have been used to fund new rigs so they could reap more maybe this would be a good time for them to start looking at alternative energy sources instead of worrying about sucking the last barrel also tracking should be banned yesterday there is no way what they leave in the ground will not end up in our water stop the madness

Bruce B. Mills
Bruce B. Mills

ENJOY IT WHILE U CAN!! Before every presidential election price always dropped, as far back as my 77 years let's me.

David Yee
David Yee

Enlightening...how about elevating the level of conversation?

Pat Dennis
Pat Dennis

Johnny Vargas you are right! Oil was low up until 6 years ago and now they cry this story about being broke ! Come on!!

Pat Dennis
Pat Dennis

Don't be gullible , They print all kinds of craziness !The price of gas has destroyed our country and helped the already rich

Brett Mize
Brett Mize

Who are we kidding? We'll be in another war in the middle east before long if we don't play our cards right.

Mona Rabin
Mona Rabin

#trump2016 The Trump Train is on the move. It will soon be in your state. Our ground crews are the BEST Volunteers out there who believe Donald Trump will "Make America Great Again". I have never wavered in my support for him. I met Mr. Trump in Raleigh and it solidified my belief that he will truly lead our Nation back to greatness. It is up to us to get out the VOTE. Lead Donald Trump to a WIN in all 50 States.

Dallas Cox
Dallas Cox

You forgot the one that will get the most media attention: Look how Obama and the Dems have reduced gas prices! What a great job they're doing for us!

Kurt Kramer
Kurt Kramer

They lower the price then rase the tax so not bad then the price goes up ouch

David Yee
David Yee

Robert, you are oversimplifying the economics. That's the problem. Corporations invest out of profits as a last resort because of taxation issues--almost all corporate capital investment is done with debt, because they get both the depreciation and the taxation benefit. Consumers, in general, are paying down debts. That is good for the consumer, not so good for the economy at large--first, it's a zero sum game, second it destroys an asset, and third it shrinks the money supply. Economics is exceptionally complicated--too many are all too willing to throw out the catch phrases they learned in high school or econ 101--but the bottom line is, the real world just doesn't work that way.

David Yee
David Yee

Lyndal, the balance sheets of the banks tell a much different story. Household debt in the US is shrinking. These numbers are freely available on the web if you'd like to inspect them--other than just summarily shouting "bull crap." Right now, food is at about zero inflation. Beef, eggs, and poultry are sharply up, while others are down. Check out the last CPI index. New vehicles are also down in prices, slightly at -0.1%. Utilities are down as well, nationwide for the last 12 months the price of gas has dropped by 14.9 percent, while electricity has dropped by 1.2 percent---this however does NOT include taxes and fees added to the bills by the states. The point of this is that you are seeing what you want to see in the economy, not what is really happening. The entire economy is in big trouble, even though consumers have had an "extended Christmas." I would be happy to discuss this further, but you really need to do a bit of credible research before just shouting "bull crap."

Barry Bourgault
Barry Bourgault

and please do even try to equate todays low price with credit to Obama, do not be fooled by him or the media

Lyndal Williams
Lyndal Williams

Bull crap. Taxes have increased, food going up, utilities gone up, veh prices rising, imports from china up, meds up, and you think peoples debts are going down, only in dreams of some.....

Kathy Matson
Kathy Matson

The stock market plummets for all kinds of reasons. The drop in the price of oil began a long time ago and the stock market has held steady dispite that. The recent drop has more to do with the stall out in China's economy, doesn't it?

Rondel Stevens
Rondel Stevens

Believe me, I have given the banks plenty of those assets and with each of them I felt like I was selling a piece of me. Each debt I repaid was reclaiming that piece. Even now when I'm over 70 I still don't own all of me. Now are you suggesting that by trying to at last become debt free I am causing harm to the American economy?

Larry Ritzke
Larry Ritzke

Then why did gas prices raise total joke always excuses.

David Yee
David Yee

Oil, worldwide is lower. Gas prices are not always directly tied to the price of oil--there is regional speculation, taxes, transportation costs, etc. Most analysts are predicting a continued drop in the price of oil.

David Yee
David Yee

Worldwide, the price of oil is lower. Gas is not always directly tied to oil--as things such as taxes, transportation, etc are added to the price.

David Yee
David Yee

Don't think it would be beneficial--states like mine have been robbing from the highway trust for years.

David Yee
David Yee

Therein lies the myth.... you would THINK that the producers would limit supply to drive back up prices--but they aren't doing it and there doesn't seem to be a short term end in sight. This is an economic quagmire where the seemingly right answers/theories are not working the way that most expect them to. Supply does not actually drive down price. Supply is a REACTION to demand according to the theory. That is why the budget constraints, indifference curves, price-consumption curve, income consumption curve, and finally demand curves are always derived BEFORE supply is calculated. (And yes, my background is economics and business). Lack of demand creates gluts which in turn drives down prices. The economy is ALWAYS driven from the demand side, unless you are a voodoo economics adherent. Supply does not create its own demand.

Norma Sprague Luettgen
Norma Sprague Luettgen

Summer travel isn't here yet. I really expect it to go back up. Won't hold my breath on it staying down.

Richard McAfee
Richard McAfee

Not good for those being lauding from the oil n gas industry tho

Benjamin Wenowitz
Benjamin Wenowitz

David Gulliksen back surgery is a really tough deal I hope your wife is on her way to recovery. I am in the state of Ohio

David Gulliksen
David Gulliksen

Debbie Taylor Shivers my wife had back surgery, no deductible. Many thousands. Recently a CAT scan. No cost.

Barry Graves
Barry Graves

Then why are they wanting to put a $10 a barrel tax on oil.

Janet Barry
Janet Barry

Johnny Vargas You are so wrong. first off, thousands have lost their job and . Second, when our oil companies go broke, and they are( American oil companies can NOT produce gas for $1.90 a gallon) regardless of, greed or what ever else you can name them, we must buy from OPEC. And then they can name their price. It's not going to be pretty.

James L. Butler
James L. Butler

The debt addiction began in the 1960s with the first credit cards. After dumping Bretton Woods in 1971, the government aggressively supported and promoted private debt expansion to artificially grow the economy. The boomers loved it. Total debt went from under $5 trillion in the 80s to over $60 trillion today. Without the 3xpansion of private debt, the economy would have never grown over 2% annually. Republicans and Democrats knew it and used it. And they are still doing it. Headlines every day "have to lower interest rates to get more borrowing to spur economy". BOJ even gone negative. Government needs you to borrow so it can keep growing.