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SERVING THE SOUTH
SOUTHERN LEGISLATIVE CONFERENCE
OF
THE COUNCIL OF STATE GOVERNMENTS
© Copyright March 2015
TALE OF TWO CITIES:
THE IMPACT OF SLUMPING OIL PRICES ON THE ECONOMY
A REGIONAL RESOURCE FROM THE SLC
P h o t o c o u r t e s y o f H o u r a n n B o s c i v i a fl i c k r C r e a t i v e C o m m o n s L i c e n s e
by
SLC Fiscal Policy Manager Sujit CanagaRetna
“It was the best of times, it was the worst of times.”
Charles Dickens, 1859 (A Tale of Two Cities)
I
n July 2008, the price o oil per barrel reached an as-tronomical $147, and the price o gasoline in several states exceeded $5 per gallon; just six months earli-er in January 2008, the price per barrel had hovered around $90.
*
Fast forward to the end o 2008, and the price had plunged to under $35 a barrel, when the Unit-ed States and world economies were in the throes o the Great Recession, the worst economic downturn to sweep over the globe since the Great Depression. Reviewing the price per barrel in the last six months reveals similar trends: in June 2014, oil was around $115 per barrel and six months later, in early January 2015, it had dropped precipitously to below $50 per barrel.
1
Interestingly, the four years with the highest average crude oil prices since the 1860s were 2008, 2011, 2012 and 2013; hence, the steep drop in oil prices is not a “new normal” but a return to
more historic price levels.
2
Figure 1 demonstrates the
roller-coaster ride taken by the price o oil in the past ive years (2009 to 2014) with regard to the two major global benchmarks: Brent and West Texas Intermediate. Along with Figure 1, Figure 2 also demonstrates the sharp drop in the price o a barrel o crude oil over a 10-year period (2005 to 2015) on January 13, 2015.
*
Information in this Regional Resource is based on information cur-rent as o January 31, 2015.
In fact, the declining price o crude oil has been relect-ed in gasoline prices at the pump, with prices dropping below $2 a gallon, in many states throughout the United States; by mid-December 2014, gas under $2 was found in 13 states. Two weeks prior, there was only one gas station in the country selling gas at that low price.
3
By mid-De-cember, the nationwide average stood at $2.55 a gallon, the lowest it has been since October 2009. Two weeks later, in the last week o December 2014, the national av-erage had dropped to $2.32 a gallon, down 12 cents in a week, and nearly 50 cents in a month.
4
On January 13, 2015, AAA reported that within the following week, the number o states with gas prices less than $2 would rise from 18 (home to more than one-third o Americans) to 25, a stunning turnaround in gas prices from even a few months prior.
5
Figure 3 provides a graphical representa-tion o the average price o gasoline (per gallon) between April 1993 and February 2015 that reinforces the cyclical nature o the commodity over two decades. Along with these broad, national prices, Figure 4 depicts the price o regular grade gasoline at illing stations in the different regions o the United States.
Why are oil prices falling?
The latest plunge in oil prices has sent seismic waves throughout the globe, prompting disparate consequences in different sectors o the United States and world econ-omies; while some sectors are net beneiciaries o the
2THE IMPACT OF SLUMPING OIL PRICES
Source:
U.S. Energy Information Administration, based on Bloomberg,
(accessed January 7, 2015)
Source: The New York Times, January 13, 2015
BrentWest TexasIntermediate
140dollars per barrel1201008060402002009 2010 2011 2012 2013 2014
Figure 1Brent and West Texas Intermediate Crude Oil Prices 2009 - 2014
dollars per barrel
Figure 2Crude Oil Price per Barrel 2005-2015
THE IMPACT OF SLUMPING OIL PRICES3
Figure 3Weekly U.S. All Grades All Formulations Retail Gasoline Prices (Dollars per Gallon)
Source:
U.S. Energy Information Administration,
(accessed February 3, 2015)
Figure 4Average Price of a Gallon of Gasoline (Regular) Across the United States January 26, 2015
Source:
U.S. Energy Information Administration,
http://www.eia.gov/petroleum/gasdiesel/gas_geographies.cfm#statesmap
(accessed February 2, 2015)