Why isn’t the Media Happy about the Drop in Gas Prices?

Have you been to a gas station recently? 

If you have you have noticed that gas prices are lower than they’ve been in a very long time. In fact, they’ve dropped so low that Americans have begun buying SUV’s again and that is a very good thing. Lower oil and gas prices can only be good for America and for Americans as the drop in price will lead to a boost in the economy as well as making it easier for lower income Americans to heat their homes this winter. 

The drop in prices comes in spite of the Obama administrations many attempts to stifle oil production in the United States – which is probably why the media hasn’t been trumpeting the great gas prices as an Obama victory.

These gas prices are a HUGE deal and the better they get, the more the public will tie the good prices to the Republican Party… especially now that they’ve taken control of Congress.


 

OPEC agreed not to cut oil production to buoy plunging oil prices — news that has the media sounding the alarm, saying OPEC’s move could jeopardize the U.S. energy boom and wreak havoc in oil markets.

USA Today opined that OPEC’s “decision means ‘pain train’ for U.S. oil industry.” The newspaper wrote that economists have warned OPEC’s “decision to maintain oil-production levels could threaten financing for some U.S. oil industry expansion and trigger market consolidation in an only-the-strong-survive scenario.”

“OPEC is playing a dangerous game with oil markets,” reads the headline for a Platts OPEC Team article. The article adds that “confirmation on Thursday that OPEC would simply roll over its 30 million b/d ceiling and arrange to meet again in June next year sent prices into freefall… Where will it end? Where will prices bottom?”

oil-field-sunset-apBloomberg warned that OPEC’s oil price war is benefitting China, which is hoarding low-priced oil. Bloomberg ran with the headline “China winning in OPEC price war as hoarding accelerates.” China is taking advantage of falling oil prices to build up its strategic reserves

“OPEC decided to maintain output targets even as a shale boom boosts U.S. production to the highest in more than three decades and causes a global supply glut,” Bloomberg reports. “As crude extends its slump to the lowest level in more than four years, China is seeking to build a strategic petroleum reserve.”

Oil prices have fallen about 40 percent since June 2014 thanks largely to hydraulic fracturing, or fracking, taking off and boosting U.S. oil production to record levels. U.S. production gains have helped suppress oil prices and have worried countries that rely on high oil prices like OPEC members and Russia.

OPEC members Venezuela and Iran have been pushing for Saudi Arabia to impose production cuts to boost oil prices. Russia would also likely want to see OPEC production cuts to boost its finances, which are currently taking a $90 billion hit from lower oil prices.

On the other hand, lower oil prices have meant falling gasoline prices for U.S. consumers — a big stimulus to businesses and consumers who now have more cash to spend or invest in other endeavors besides transportation.

But some media outlets have been warning that falling oil prices pose risks to U.S. oil companies who may lose financing or scale back operations as their profits dry up.

“Much of the recent increase in U.S. oil production, the product of fracking and drilling in North Dakota, Colorado and elsewhere, is funded with borrowed money,” USA Today quoted economist Philip Verleger warning.

“Describing the aftermath of OPEC’s decision as a ‘pain train,’ financial analysts at Robert W. Baird & Co. issued a Friday note that forecast need for a ‘double-digit percentage drawdown’ in the U.S. oil rig count ‘to mitigate crude oil oversupply concerns,” USA Today reported.

“I think the lending to companies that are going to drill that kind of well is going to stop. Right now,” Verleger told USA Today. “There’s going to be no more cash into these companies from the outside.”

Reuters has warned that OPEC’s decision not to cut production is tantamount to a “price war” on U.S. shale production.

“[Saudi oil minister Ali al-Naimi] spoke about market share rivalry with the United States,” a source told Reuters after OPEC’s meeting last Friday. “And those who wanted a cut understood that there was no option to achieve it because the Saudis want a market share battle.”

As OPEC met, oil prices fell to below $72 per barrel on high U.S. shale production and weak economic growth in China and Europe.

“Several OPEC ministers who wanted a cut left the meeting room visibly frustrated and kept silent for several hours although when they spoke later they said they accepted the decision,” Reuters reported. “A Gulf delegate said Naimi had reassured members that the oil price would recover as demand will ultimately pick up. But he insisted that if OPEC cut output it would lose market share.”

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