The Downside Of Cheap Oil

Although the drop in gas prices brings many Americans a great deal of joy when they arrive at the pump, low oil prices isn't net good to the U.S economy. Very little of the downside is acknowledged in the financial press-until now. Falling oil prices are affecting everything from oil services companies to state budgets. Texas, which has rode the oil boom for a decade has seen it's state payroll reduced by 125,000 due to the price of oil. Texas has also seen the number of drilling rigs decrease since oil service companies like Baker Hughes and Halliburton are experiencing cutbacks in oil exploration. Last month oil services giant Schlumbeger announced it could see at many as 20,000 layoffs by June of this year. Baker Hughes announced that it was closing a plant in Texas and laying off 110. Low oil prices have geo-political consequences as well. Russia which has been battling a plummeting ruble due to western sanctions surrounding it's incursion into Ukraine, needs oil to hover around $100 per barrel to balance it's coffers. Venezuela needs it around $120 to shore up its books. Neither scenario seems likely in the near future,both economies are in deep recession and in desperate need of a lifeline.

Many other countries such as Iran, Nigeria and Mexico, who have very little else in the area of revenue generators besides oil, can't afford low oil prices much longer. Only Saudi Arabia with is large war chest in foreign reserves could afford to wait out the economic storm. The best we could hope for here at home is a healthy balance between cheap oil and economic growth. Sometimes you just can't have it all.

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