According to Newton’s Third Law of Motion, for every action, there’s an equal and opposite reaction. It’s commonly applied to situations outside of the realm of physics incorrectly, but we still ponder cause and effect. Currently, prices for oil and gasoline are at the lowest they’ve been in years. The question is ... is someone suffering because of that now, and will we see a backlash in the future?
While one might think the drop in gas prices would negatively impact ethanol production, Mark Marquis of Marquis Energy in Hennepin said that’s not the case.
“Gas and ethanol prices aren’t directly tied together,” Marquis said. “Gasoline isn’t involved in ethanol production, and the prices don’t really have an impact. Right now corn prices are down. Natural gas prices are down. Those are two things we use to produce ethanol, so that price drop really helps. Right now, we’re at a record high production.”
Some ethanol producers and economists have bemoaned the impact of cheaper gas on ethanol production; Marquis doesn’t see it that way.
“Each year at this time, it’s a slowdown because people drive less in the winter months,” Marquis said. “That’s normal. During the winter, we’re producing too much for demand, and we have tighter margins. During the summer, we aren’t meeting demand, and we have higher margins.”
However, other sections of the country are feeling the cheap oil pinch. Perhaps chief among them is North Dakota. Since the 2006 discovery of the Parshall Oil Field, North Dakota has become a new land of opportunity. Unemployment is the lowest in the country, and the government reported a budget surplus of $1 billion in 2013. That’s probably going to change for 2015.
According to a Tuesday, Jan. 27 report from the Public Broadcasting System NewsHour, many of the oil companies have cut back drilling operations. While oil companies normally cut back on drilling during the winter, Emily Guerin of Inside Energy noted many oil companies are planning much less drilling for the upcoming year.
The oil drilling slowdown is also affecting companies that service the oil boom. Companies that service drilling equipment and transportation companies are also feeling the grip as the glut for which they increased their services starts to become a pinch.
The current situation came from several factors, some of which could not be seen coming. Failing economies in many of oil’s biggest consuming countries coupled with improvements in technology have created large cuts in demand. New methods of extracting oil, especially fracking, has increased oil production in the United States and Canada, cutting demand further.
Finally at the November meeting of the Organization of the Petroleum Exporting Countries (OPEC), Saudi Arabia announced it would not surrender its market share. Instead of decreasing production to stabilize oil prices, Saudi Arabia continued producing at its previous rate, causing prices to plummet.
While the low gas prices are good for consumers in the United States and Japan, countries that depend heavily on income for their oil production are suffering under the current climate. Venezuela has approximately 20 percent of the world’s oil reserves and furnishes 40 percent of America’s oil needs. With prices in freefall and 65 percent of its exports tied up in the oil trade to the United States, Venezuela is experiencing financial problems and accompanying civil unrest.
Bottom line ... the final result of the current oil glut is difficult to forecast.