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The Hidden Costs Of Obama's Cheap Gas

Obama

President Obama graciously thanked himself for cheap gasoline at a rally in Philadelphia for Hillary Clinton on Tuesday.

To hear him tell it, “Let’s face it; Republicans don’t like to hear good news right now.” And while cheap fuel is indeed something that millions of households and businesses are happy about, including Republicans, many would doubt that Obama is to thank. Meanwhile, businesses in the oil and gas sector and those employed (or unemployed, as the case may be) in the oil and gas sector, along with those in the real estate sector and others who have been struck by low oil prices, may be less than thankful, regardless of their politics.

To be fair, Obama probably didn’t plan to take credit for low prices at the pump that day—it was shouted out from someone in the crowd, and he was quick to accept the credit, saying “Thanks, Obama!”

And while unplanned, Obama was smart to capitalize on the preoccupation that many Americans have with low prices at the pump, without much thought of the bigger picture. Smart, but definitely only part of the picture.

The shale boom that coincided with Obama’s first term unquestionably did a lot for the energy independence of the U.S., but if you take credit for low prices at the pump, you’re inadvertently taking credit for the global supply glut as well—a global glut that has forced prices ever downward, resulting in the comfortable $2.00-ish per gallon Americans are now enjoying at the pump.

The oil and gas industry thrived at the start of the shale boom, and so did everyone in it. Prices at the pump started going down, but the price of crude oil was still comfortably high—for a while. Then, two years ago, as crude oil prices started sinking, the happiness for some began to wane.

According to law firm Haynes and Boone, between January 2015 and July 2016 there were 90 bankruptcies in the U.S. oil and gas sector. A recent report from Debtwire warned that another 135 energy companies are at risk of going under, with their debt load in some cases reaching as much as $14 billion.

The shale boomers borrowed heavily to sustain the boom. Banks were happy to lend, until last year, when it became obvious even for the most incurable optimists that low oil prices would be staying down for a long time. That’s when banks started tightening their credit requirements and most independent energy industry players discovered that the game is no longer about growth, but about survival.

For Big Oil, it hasn’t yet come to survival, but injuries have been sustained—some of them serious such as giving up projects worth billions of dollars, slashing jobs and cutting investments. In short, Big Oil has spent the last 16 months circling the wagons, trying to outwait this slump. Related: What Is Holding The Electric Car Market Back?

Employment in the energy industry was highly sought after at the height of the boom that pulled prices at the pump down to $2 a gallon. Now, an estimated 350,000 people have been laid off globally. Of these, 99,000 were fired in Texas alone. These are people who, like their bosses, are highly unlikely to be in the mood to give thanks to the President, whose administration has nurtured the fracking that made the shale revolution possible.

Environmentalists, who do have reasons to be grateful to Obama (for instance, for the suspension of the Keystone XL pipeline project) are not that happy with the outgoing President when it comes to fracking, which many have linked to an increase in seismic activity and underground water pollution from chemicals-rich fracking wastewater dumped into wells in the ground.

Electric vehicle makers are probably not too thankful either, nor is the renewable energy industry in general. Tesla, for instance, is going against the grain to get a more widely affordable car to the market to incite more people to switch from gas to electricity, but this takes time and money, which, it seems, Tesla doesn’t have. A couple of months ago, the company announced that it would no longer offer to buy back their cars at no less than half the original price, should they decide to sell it. This came amid missed sales targets and delayed production. And why should drivers throw money at an electric car (despite rebates and all) when gas is only $2 a gallon?

Cheap gasoline has truly been a boon for millions of people still coping with the fallout of the 2008 financial crisis. But like every boon, it has become a curse for many others, from Big Oil executives to environmentalists, from former oilfield maintenance workers to the real estate industry. These people won’t be joining in the “Thanks, Obama” refrain anytime soon.

By Irina Slav for Oilprice.com

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  • Don on September 15 2016 said:
    Yes screw everyone else as long as everyone in the energy industry is making money that's all that matters! So what if hard working Americans are slammed by high energy prices, they don't matter!!
  • jghedge on September 15 2016 said:
    Shale oil was stupid to begin with, just another get-rich-quick scheme like mortgage-backed securities. How intelligent does one need to be to see that it was too expensive to recover from the ground to be sustainable when the glut it produced also drove down the market price?
  • Naksuthin on September 15 2016 said:
    Low gas prices may hurt some sectors of the US economy...energy producers.
    1. But it's a boon to the rest of our economy: airlines, delivery services, tourist industry, and millions of drivers across the country. So the 99,000 jobs that were lost in Texas were quickly made up somewhere else ...and overall we are gaining far more jobs than we are losing. And lower gas prices is helping more Americans than it's hurting.

    2. In addition, our arch rival Russia...which depends on oil exports to prop up it's economy....has enjoy economic prosperity for the past few years when oil was over $100
    They used their new wealth to expand their influence and boost their military might
    So now that they are facing economic hard times at home when oil is at $45 a barrel that should keep them in check and closer to home


    3. Also, OPEC which once held the economic fate of the US in it's hands has lost a lot of it's clout now that oil prices are low.
    So we aren't likely to ever see long gas lines and an oil embargo like the one that crippled our economy in 1973

    4. Nor do we have to fret about political conditions in the middle east any longer. We have been too wrapped up in the middle east for the last 20 years. It's time we turn our attention to Asia where the balance of power is shifting.

    So...yes, we may have lost 100,000 plus jobs in the energy sector

    But all the benefits of cheap oil far outweigh the few jobs that have been lost

    ....and lets face it. The real losers are the multinational corporations in the energy sector....and they've enjoyed good times for long enough now.
  • hurp on September 15 2016 said:
    @Don: Did you know that hard-working Americans are also employed in the oil sector and that it's not just a bunch of big wig suits and tycoons seated at a table tossing money everywhere while oil magically manifests in the world?

    Please quit being a total tool.
  • Naksuthin on September 15 2016 said:
    PROS:
    1. Cheap oil is an economic boost to businesses and consumers all across the country who pay less for gas…which means consumers can spend more on restaurants, hotels, airlines etc. and restaurants, hotels, airlines etc have less energy overhead and can make more in profits
    2. cheap oil keeps Russia from building it’s military might and expanding to other counties since it depends on oil exports to keep it’s economy and military growing…..and $40 a barrel oil means economic cutbacks
    3. Cheap oil means We are no longer tied to the middle east. Our entire focus for the past three decades has been the middle east and it’s oil. Now that the US has become energy independent and actually exports oil….we are free to shift our attention to more important regions of the world…like Asia
    4. We no longer have to worry about being held hostage by oil producing nations. There’s no chance OPEC can strangle us with an oil embargo like they did in 1973
    CONS
    1. 100,000 unemployed energy workers
    2. Less profits for multinational oil companies who have grown RICH over the past decades when gasoline was $100 a barrel and consumers were shelling out $4 a gallon.
  • Sam Ackman on September 15 2016 said:
    Still low price of oil is good for the US economy in whole
    And the oil industry is having a good push to low down expenses and get up a productivity.

    Thanks Obama
  • Robert Frank on September 16 2016 said:
    First, it is possible that many oil companies are going under for making dumb decisions, just like people who bought million dollar homes making an average salary went under in the late 2000s. But that possibility is not being considered.

    Second, before all this madness, when price at the pump was $ 1.40, how was everyone surviving?

    Third, a friend of mine who owns a small oil company told me when prices dipped again to 1.40 at the pump (a few months ago) that the ideal price was $ 2, where people can still pay for gas and they are making money. So...
  • Kevin Oconnell on September 16 2016 said:
    Big Oil is responsible for the death of humanity and the destruction of Earth. Thanks Big Oil.
  • bilbert on September 16 2016 said:
    Let count the not so hidden costs of Bushs high gas prices first.
  • Andre Peron on September 16 2016 said:
    Irina,
    Don’t you find it coincidental that 2 years ago, when Ukraine sanctions were headlines and being enacted, Obama attended a NATO meeting in Europe, then flew directly to Saudi Arabia. Then within months the Saudis begun to flood the oil market and the oil prices collapsed, screwing the Iranian and the Russian budgets & gold reserves and helping the US consumer market. The US shale industry squeeze was simply one of the by-products of this geopolitical game. Russia gold reserves with zero out next year. It is an endurance game that Putin & Iran cannot win.
  • Anon on September 16 2016 said:
    We all know now that the housing boom that collapsed in 2008 has never recovered to 'normal' long term trend volumes in homebuilding and associated jobs.

    The only really construction employment growth occurred as part of the shale boom. It was $3 trillion of spending on infrastructure.

    With the glut, there has been some correction. However, to the extent that our economy has held up compared to every other developed countries is the shale boom.
  • Jed on September 16 2016 said:
    Not a word about the Saudi's persistent full capacity production through the period, eh? They are usually quite sensitive to barrel value and global supply, and commented several times through the price decline period.

    Yes, there is a story here, but you didn't connect the dots. Who do you think negotiated that persistent production line with them? And wasn't it interesting how it came at just the time that Russia was expanding their global footprint again? And Venezuela needed to be pushed back? The LA Times called this earlier this year.

    And maybe it wasn't such a bad thing - from Obama's perspective - that the energy folks in the US would be out of money this year, seeing as how they typically align with Republican candidates. Just sayin', this was a long range play.
  • GregSS on September 16 2016 said:
    @Naksuthin: Just because the US is now exporting a small amount of crude does not make it energy independent, as we still import 8 million barrels per day!
  • BS Buster on September 16 2016 said:
    @Naksuthin Absolutely correct!!
  • mulp on September 16 2016 said:
    The lower oil prices did not occur from the pro-oil Bush-Cheney energy policies because they wanted oil prices to rise to generate high profits to create wealth.

    Obama wanted lower oil prices from too much supply of oil to slash profits and destroy wealth and to stick it in the eye of conservatives who claim that job cuts lead to higher profits and lower prices and faster gdp growth.

    We have seen in the past two years:
    Job cuts
    Lower profits
    Lower prices

    But no big surge in gdp growth. In fact, gdp growth slowed as the price of the oil fell for all the oil produced which subtracts from gdp.

    Gdp is limited by total labor costs because it is workers spending their incomes that pays for everything produced.
  • Anderson on September 17 2016 said:
    Sounds like the writer had stock in oil. I feel bad for the entry levels of the 99,000 that lost their jobs, but on the bright sight unemployment is at an all time since 2008, so I feel good for the millions of Americans who are enjoying cheap gas and the hundreds of thousands of Americans and others who are no longer polluting the the earth by driving electric vehicles, thanks Obama for the tax credits.
  • disillusioned on September 19 2016 said:
    You can thank Obama for lifting the sanctions that allowed Iran to flood the market with oil. Iran is a terrorist harboring nation so the sanctions removal did two things:

    1. Decreased price of oil & gas thus eliminating american jobs.
    2. Increased opportunity for war equipment manufacturing to combat terrorists.

    Yes, please thank Obama for reversing course on promises he made when running for President of the United States. He's not interested in the American public. He's interested in serving his own interests, just like anyone else running for President of the USA.

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