The oil glut

The world is simply awash in oil

Gas prices continue to drop.
(Image credit: JAY DIRECTO/AFP/Getty Images)

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"How low can oil prices go?" asked Debbie Carlson at The Guardian. Crude prices dipped below $35 a barrel this week, the lowest level since the 2008 financial crisis, and further declines "could be in the cards." The reason? The world is simply awash in oil, thanks largely to the U.S. shale boom and the decision by the Organization of Petroleum Exporting Countries (OPEC) to keep pumping at record levels. Meanwhile, El Niño is cutting into American consumers' demand for heating oil by delivering unseasonably warm weather across the country. Analysts still don't know how far prices might tumble. "It's hard to call a bottom," said commodity broker Daniel Pavilonis. "It's like catching a falling knife."

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That probably means more suffering for the U.S. oil patch, said Tom DiChristopher at CNBC. After a decade of steady growth, the once-booming U.S. energy sector was the biggest job cutter of 2015. Energy companies laid off nearly 93,800 workers through November, up 700 percent over the same period last year, and at least 36 oil and gas producers filed for bankruptcy this year. That's led congressional leaders to throw energy companies a "lifeline" by agreeing to repeal the nearly 40-year-old ban on U.S. oil exports, said Matt Egan at CNN. The 1975 law was meant to combat skyrocketing gas prices triggered by the OPEC oil embargo that came in retaliation for U.S. support of Israel during the Yom Kippur War. Lifting the ban now, proponents argue, will save U.S. jobs and keep smaller energy companies from going under.

Judging from the tone of the news coverage, you'd think the oil glut is unequivocally bad news, said Daniel Gross at Slate. But gas around $2 per gallon puts $100 billion extra a year into Americans' pockets, and they're using it to save money and pay off debt. That's not to downplay the risk of the oil patch's woes "seeping into the broader financial system." Oil companies borrowed heavily to expand during the boom years, and that debt is now finding its way onto balance sheets of pension funds, mutual funds, and even individual investors. But even as we shed a tear for oil-trading hedge funds that made ill-timed bets, "we should share a smile for the typical American consumer who's enjoying the benefits of really cheap oil."

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