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The Battalion

The Student News Site of Texas A&M University - College Station

The Battalion

The Student News Site of Texas A&M University - College Station

The Battalion

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Oil prices fuel employment concerns

Photo By: Shelby Knowles Gas prices have continued to drop to levels below $2.

The winter holidays brought a surprise present for many Americans, as a dependent oil market drove the national average of gasoline prices down to levels not seen since 2008 and 2009.
According to the U.S. Energy Information Administration, the price of all grades in conventional areas is down to $2.23 per gallon and the EIA is reporting costs of less than $50 per barrel.
Oil prices slumped late November after OPEC announced it would not cut production levels after a steady price decrease since June. The resulting oil saturated international markets and led to two different financial realities — an unexpected windfall for American consumers and a difficult budget gap for nations and companies that assumed prices would stay high.
Detlef Hallermann, clinical associate professor and director of the Reliant Energy Securities & Commodities Trading Center, said the imbalance between the oversupply of crude oil — the main commodity used to create gasoline — and a low overall demand are causing gas prices to plummet.
“Refineries are able to produce at a cheaper cost and are therefore charging less for gasoline,” Hallermann said. “At the same time, the demand for oil has slacked off due to slowdown in the economy.”
Hallermann said current gas prices greatly benefit states that rely on oil as an input to manufacture products. But for Texas, the largest oil-producing state in the nation, these prices lead to slower job growth and steadily impede economic growth.
“In Texas, you’ll see a decrease in employment in the producing regions as well as the construction areas,” Hallermann said. “Oil rigs are shutting down and the Texas-Louisiana gulf coast is suffering.”
Texas is not the only region that may suffer. Hallerman said many oil-producing countries, such as Saudi Arabia and Venezuela, used to high oil prices will see a greater strain on economies and national budgets.
“Venezuela is experiencing more unrest and political strife because of this,” Hallermann said. “Russia’s economy is vastly dependent upon oil and their currency has just reached a record low.”
Ray Mentzer, lecturer at the Mary Kay O’Connor Process Safety Center with an expertise in oil and gas production, said many oil and gas companies have made significant decisions to keep up with the rapid decline of oil prices.
“[Oil and gas companies] are cutting back on their capital expenditures and projects while some have announced layoffs,” Mentzer said. “One can expect an impact on hiring by many companies in this industry.”
Mentzer said many graduates go on to work for oil and gas companies and ongoing research through the university is funded by the industry.
Petroleum engineering professor Ruud Weijermars said he does not expect the current trend of decreasing gas prices to last long.
“It is very hard to continue producing oil at such low costs,” Weijermars said. “This is a very exceptional trend. By this summer, we will be back to the normal oil costs.”
Mentzer said the oil price per barrel will work its way up again in six months.
“The cyclical nature of crude prices is not new to the energy industry,” Mentzer said. “It remains a continued challenge for managing the long-term business.”

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