Tags: Timiraos | Brawner | oil | energy

WSJ's Timiraos Warns About Low Oil Prices

By    |   Monday, 10 Nov 2014 07:47 AM

Nick Timiraos, national economics correspondent for The Wall Street Journal, appeared on C-SPAN's Washington Journal recently to discuss his front-page article titled "Gas at $3 Carries Rewards — and Risks."

He was interviewed by Greta Brawner, who began by asking him what is going on with the gas price.

Timiraos acknowledged the conventional view that a drop in the gas price operates like a tax cut and gives consumers more money to spend and boost the economy. However, since the U.S. has experienced a boom in shale oil and natural gas exploration, which has changed its energy profile in the direction of an exporter of oil, he questioned whether this would be an unmitigated benefit to the economy as oil prices dropped from $107 per barrel as recently as June to about $80 now.

While only 4 percent of oil wells are unprofitable at $80, if the price continues to drop, investors will curtail their activities, and economic activity in this sector will decline. However, old producers can still be profitable at $50 oil.

Brawner put up a chart showing gasoline prices as low as $2.76 per gallon in southern states, and she asked Timiraos to elaborate on the factors causing this decline. He responded that the price is a result of supply and demand, with Libya adding to supply recently and demand declines due to signs of a slowdown in the Chinese and European economies.

She followed up with a question about the activity that high prices had engendered during the boom. Timiraos pointed to new exploration and employment of fracking technology in states like North Dakota and Pennsylvania. Unemployment in North Dakota fell to 3 percent, and the state's economy grew at 9.7 percent, and even wages at Wal-Marts in North Dakota have risen due to a shortage of workers. (There have also been reports that the capacity of the prison system in North Dakota has been stretched due to the population increase caused by the oil boom.)

As oil and oil service companies have reported earnings, they have cautioned that if oil prices drop to $75 per barrel, it would change the conversation as to future exploration, and Goldman Sachs has predicted this will happen next year.

When a caller suggested that an oil-rich U.S. could use oil to gain diplomatic leverage, Timiraos agreed and noted that some of the countries and entities that have been making mischief, like Russia, Iran and ISIS are much more dependent on oil revenue than is the U.S.

The tenor of calls was that people are pleased with the drop in oil prices and view the adjustment in exploration as a normal reaction. Timiraos reminded that audience that household balance sheets still need repair, so money not spent at the pump might be saved rather than giving a boost to holiday spending.

This did not come up in the discussion, but there was a flurry of speculation on CNBC on the same day as the article as to the effect on oil if Lockheed Martin were able to develop fusion technology during the next decade, with at least one commentator speculating that petroleum could become the new whale oil.

(Archived video can be found here.)

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Nick Timiraos, national economics correspondent for The Wall Street Journal, appeared on C-SPAN's Washington Journal recently to discuss his front-page article titled "Gas at $3 Carries Rewards — and Risks."
Timiraos, Brawner, oil, energy
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Monday, 10 Nov 2014 07:47 AM
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