Would you trade higher gas prices for your family to have a booming local economy? I think I would make that deal — and regardless of whether I want to or nor I probably will be soon.
After sitting in the doldrums for more than two years, global oil prices appear to be heading upward. This month an international benchmark for crude oil hit its highest price since November 2014 at more than $74 per barrel, according to Wall Street Journal reports.
That’s bad news for drivers, who could begin seeing prices north of $3 per gallon again, but good news for the South Mississippi oil industry.
Even though I don’t have any direct economic ties to oil , the Marion County economy is so connected to that field that I think it would benefit me more indirectly than I would pay for in higher gas prices. More oilfield workers, truck drivers and other related jobs making good wages means they’re able to spend more at local stores, which in turn leads to more advertising and subscriptions. That logic applies to just about any business in this community, from real estate to restaurants.
Considering the difficult time many local businesses have had in getting back to where they were before 2008’s Great Recession, higher oil prices should be good for the local economy on the whole.
I know that’s a hard pill to swallow when a necessary cost for all families goes up, but think about it as the optimistic way to view a difficult situation.
We can thank, I suppose, the Organization of the Petroleum Exporting Countries along with Russia. They recently announced their intentions to stick with a 2016 plan to limit oil supplies, which has been a driver for the higher prices.
We have heard a lot about OPEC going back to the 1970s gas crisis and continuing now to President Trump’s tweets, but how does it work? Here’s my simply explanation:
The cartel’s goal is to keep oil prices high — and its members rich. It does this by all of the countries involved, led by Saudi Arabia, agreeing to hold off on how much oil they sell when prices get low. In America, we can’t do that because the oil is controlled by private companies who sell whenever they want and are prevented by law from colluding to manipulate prices. But in the 14 OPEC nations, the government owns the oil supply, which is really not ideal because it leads to rampant corruption and waste.
However, it does allow for market manipulation by reducing the supply of oil and driving prices back up.
But the problem with any cartel is that there is great incentive for individual members to cheat. That is, if everyone else is keeping prices high by selling less, any individual country can decide to increase its production, thus getting the best of both worlds by selling more at the artificially high prices. Then all the other countries get mad and start selling more, too, and the cartel collapses.
OPEC has experienced some of that lately with Iran, which hates Saudia Arabia and tries to undermine it wherever it can.
Also, OPEC doesn’t control all of the world’s oil — and is losing ground to the U.S. every day because of fracking technology we developed. That allows us to extract shale oil efficiently enough to make it worthwhile — if prices are sufficient.
However, as prices have fallen over the past few years to as low as $30 per barrel, it’s not been profitable to operate shale oil fields, many of which are in Southwest Mississippi, so they’ve shut down.
But OPEC’s actions are changing the market so that it’s feasible to open them back up. That could both promote U.S. interests by giving us more of the market and sparking an influential industry. If nothing else, just tell yourself that as you ruefully swipe your card outside the convenience store.
Charlie Smith is editor and publisher of The Columbian-Progress. Reach him at csmith@columbianprogress.com.
