Which would you like first? Let’s start with the bad news. Falling oil prices—which have recently dipped below $60 for the first time in five years—are putting a strain on shale producers, many of whom won’t be able to profitably drill at these price levels. The Energy Information Administration cut its forecast for American oil production next year from 9.4 million barrels per day down to 9.3 million. According to the WSJ, retrenchment is already underway:
U.S. energy companies are starting to cut drilling, lay off workers and slash spending in the face of an accelerating decline in oil prices, which fell to a fresh five-year low Wednesday. […]Another sign of the energy industry’s pullback: the number of rigs drilling for oil in the Eagle Ford Shale in Texas has started to drop. Drilling in the nation’s second most active oil region hit a peak of 210 rigs in July but recently fell to 190 rigs.
Permits for new wells dropped nearly forty percent in November, as the industry reacted to the continued price slide. This is the first major check to the shale boom’s momentum, and a reminder that America’s energy fortunes are not immune from events beyond our borders.Now, on to the good stuff. Next year’s oil production forecasts may have dropped by 100,000 barrels per day, but we’re still producing near-record amounts of crude, and that’s having a very positive effect on the American economy. According to a new study from the Congressional Budget Office, the shale boom will boost American real GDP 1 percent by 2040, and two thirds of a percent by 2020.Fracking is giving the U.S. economy a much-needed boost, and will continue to do so for decades to come. But there’s more good news: low oil prices are saving American consumers money at the gas pump, effectively encouraging spending ahead of the holiday season. The FT reports:
Store and restaurant sales were up by 0.7 per cent compared with October and 5.1 per cent from a year ago, in a sign that faster jobs growth and the rapid drop in petrol prices are boosting consumption. […]“[The bear market] should provide a considerable boost to consumer spending next year, when we expect it to help drive the fastest rate of economic growth for a decade, [said Joseph Lake at the Economist Intelligence Unit.]”
So there you have it. Plunging oil prices are slowing the breakneck pace of America’s shale energy renaissance, but they are by no means stopping it, or the long-term economic benefits it promises. In the meantime, a lower price of oil is a decidedly good trend for the rest of the U.S. economy, as both businesses and consumers benefit from cheaper energy. It’s a good time to be alive, unless, of course, you’re a petrostate.