SLC Regional Resource | March 2015

Tale of Two Cities: The Impact of Slumping Oil Prices on the Economy

Sujit CanagaRetna

As the effects of dipping oil prices ricochet through the United States and the world, it is increasingly becoming clear that there are winners and losers. Triggered by an explosion in American oil and gas production levels; sputtering economic trends in Europe, China, Japan, Russia and emerging markets leading to declining demand; increasing production from producers like Iraq and Libya; countries like Saudi Arabia, a producer with an oversized impact on global oil supplies, maintaining supplies at current output levels and resisting production cuts; and the strengthening of the U.S. dollar have acted in concert to substantially push oil prices downward: from $115 a barrel in June 2014 to less than $50 a barrel in January 2015.

The latest plunge in oil prices has sent seismic waves throughout the globe, prompting disparate consequences in different sectors of the United States and world economies; while some sectors are net beneficiaries of the decline, other sectors are on the losing end of the falling price of oil. High energy prices pose huge burdens for most Americans, particularly those who drive great distances each day and those who only can turn the thermostats down so low when the weather turns cold. Hence, increasing energy prices result in consumers cutting back on their discretionary spending, a trend that causes negative consequences on state, regional and national economies. However, when energy prices fall, consumers have considerable leeway in devoting these savings toward other expenditures. Meanwhile, tumbling oil prices lead to adverse consequences at several points in the economy with repercussions at both the state and national levels. In that vein, SLC Regional Resource examines the effects of low oil prices on both state economies and the greater nation.