Idahoans Benefit from Falling Oil Prices

After years of rising gasoline prices Idahoans are getting a reprieve, but as the state further integrates into the global economy, the ramifications of falling – or rising – oil prices become more complicated.

What is Driving the Drop in Prices?

crude oil table

Over the past four years global oil production has grown from roughly 85 million barrels per day to 90.1 million, largely due to the significant technological advancements in hydraulic fracturing – fracking. This has allowed producers to extract oil from shale formations previously thought unviable.

Data from the U.S. Energy Information Administration show fracking has allowed the United States became the largest oil producing country in the world in 2013.

In 2013, oil production in the U.S. increased to 12.3 million barrels a day – up from 11.1 million in 2012. Saudi Arabia slipped to second in 2013 with production of 11.6 million barrels a day, down 100,000 from a year earlier

The rapid growth in production, however, has not been met with the same level of growth in demand.

Global Oil consumption

Coupled with a slow global economy and increasing energy efficiency (e.g. significantly improved vehicle fuel economy), the global consumption of oil has slowed. In 2014, world production surpassed consumption by approximately one million barrels a day. As a result, the economic boon in the oil industry turned into a glut, pushing oil prices into the greatest freefall since the depths of the recession in 2009.

What has Happened to the Price of Oil?

Despite recent years of stability amid growth, falling oil prices have shaken the energy industry to its core. After the price of oil peaked in June at $115 a barrel, the price has fallen to under $50 a barrel over the past seven months.

Gasoline experienced a similar drop in price. In November, the average price for regular gasoline in the U.S. was $3.03 a gallon. Since then, the average price has fallen 32 percent to $2.07 a gallon.

Average Price_Gas

In November, the average gasoline price in Idaho was $3.25 a gallon, the sixth highest in the country. The price has since fallen 41 percent – the largest decrease of any state – to $1.89 a gallon, ranking 50th nationally.

What are Oil Forecasts?

While the energy market will eventually rebound, forecasts indicate lower prices may be here to stay. The U.S. Energy Information Administration projects the national average retail price for regular gasoline at $2.33 a gallon through year’s end, and the average American household is expected to spend $750 less on gasoline in 2015. The projected retail price for gasoline should increase to $2.75 in 2016 under the administration forecast.

The administration forecasts the price for Brent crude oil – European-produced oil and the globally accepted benchmark for price – will average $58 a barrel this year and $78 a barrel in 2016. West Texas Intermediate oil from the United States is expected to average $3 to $4 less per barrel.

What Does this Mean for Idaho?

The Federal Highway Administration reported that per capita travel in 2011 exceeded 10,000 vehicle miles. Using the Environmental Protection Agency’s average fuel economy of 24.1 miles per gallon for 2013 model year vehicles, gasoline consumption in Idaho averaged 417 gallons per person. Dropping pump prices mean big savings for Idaho households.

As wages struggle to rebound following the recession, the drop in gas prices has provided a much needed economic boost in Idaho. In 2013, per capita income was $22,652. If the average price of gasoline in Idaho holds at the current rate of $1.89 a gallon, savings on annual gasoline expenditures would exceed $500 per person, essentially raising per capita income 3 percent through additional buying power. Based on data from the Idaho Department of Transportation, annual savings per licensed driver increases to roughly $1,900.

Advancements in drilling technology and the discovery of additional oil supplies should give Idahoans some prolonged savings at the pump and provide a spark to the state’s economy.

Christopher.StJeor@labor.idaho.gov, regional economist
(208) 557-2500 ext. 3077