What cheaper gas means to college students

Image by Matthew Youngberg via Flickr

Amid Bennaim | Staff Writer

opinion@fiusm.com

Aside from the obvious benefit of paying less at the pump, many FIU students will feel the effects of lower gas prices in ways that they perhaps did not expect. While the President and many politicians on both sides of the isle rush to call this a “750$ tax break” for the average American household, they had little to do with the plunge in gas prices. It actually comes down to simple economics. Fracking and horizontal wells have allowed American oil companies to remove oil from the ground at a price that makes that oil profitable under normal market conditions. They produced so much that they stored their oil in reserves and empty tankers offshore in order to maintain stable prices, but eventually they ran out of room and were forced to sell. This massive increase in supply is responsible for lower prices.

American oil companies have a lot to lose from this. Saudi Arabian oil is very cheep to dig up. They can compete at the current prices — which hover around 50$ per barrel — while American companies suffer. This is because fracking is expensive and requires the market price of oil to be at around 70$ or more in order to be profitable. In the long run, this will likely hurt the overall American energy sector although the extent by which it does is unknown.

Environmentalists are also concerned about falling oil prices. Many people look for higher fuel efficiency in their automobiles and appliances because they want to save money on fuel. While many Americans still care about the environment, lower oil prices will make it harder to justify paying more for a hybrid. The good news for them is that while prices have gone down, consumption has not gone up. This suggests changing trends in the way that Americans consume oil.

There are, however, even bigger losers. Our diverse student body will likely be affected by the fallout that this turn in oil prices will have in South America. The problem is that many economists believe that the Venezuelan economy will collapse this year. The government of that country calculated its budget based on 100-120$ per barrel of oil. Petroleum exports account for 90% of Venezuela’s exports, so there is little doubt that this fall in prices will exacerbate many of the already rampant problems in Venezuelan society and lead the country to default on its debts.

In the event of economic collapse in Venezuela, it is likely that many other countries will suffer because of the interconnectivity of the Latin American economies. Undoubtedly Cuba stands the most to lose as Venezuela is their largest trade partner and provides billions of dollars every year in humanitarian aid and oil. This is perhaps the reason that the island’s government is so willing to work with the United States. Argentina, Bolivia and Jamaica will also likely see economic slowdown if the trade and aid from Venezuela was ceased. Argentina would probably be hit very hard because of their relationship with Venezuela through MERCOSUR. After Argentina refused to pay some of its debt last year, it will be very hard to find countries that are willing to give Argentina a loan with a payable interest rate.

While it might seem like so many stand to lose, it is important to remember that many of us stand to win. Most Americans will have a little extra cash to spend and this will likely stimulate the economy overall. That being said, don’t expect the low prices to last forever, they will rise again. The questions are when, and by how much.