Strictly Business: Downside for falling gas prices?

By Gordon Oliver, Columbian Business Editor

Published:

 

Gordon Oliver, Columbian's business editor

We love those lower gas prices, right? We drive away from the pump with a few more dollars for groceries, movies, maybe even our savings accounts to backstop our flat wages.

But — and there is always a “but” with even the best of news — when do falling gas prices become too much of a good thing?

That’s becoming a hot topic from Wall Street to Clark County. The chatter on Wall Street is that crude prices can’t go much lower than last week’s $80 per barrel before something has to give in order to keep the oil company profits flowing. And that “something” might just be a slowdown in production out of the Bakken oil fields.

Analysts say that a barrel price below $75 per gallon should trigger a cut in production. But who cuts back first — domestic producers or Middle East giants?

No one knows.

Today’s price issues don’t affect the proposed Tesoro-Savage oil terminal at the Port of Vancouver, now grinding its way through a state environmental review process. But if prices remain low and production from the Bakken oil fields slows for a sustained period, the terminal’s developers could make less than they’d expected. After all, when you’re moving up to 15.1 million gallons of oil per day — 360,000 barrels of 42 gallons each — a few dollars difference in price adds up to big bucks.

The world has changed from the days when the Organization of Petroleum Exporting States, or OPEC, could single-handedly control prices due to its dominant position in controlling the amount of oil reaching thirsty markets. These days, the U.S. produces more oil than it imports. Most new production in the past five years is being extracted from booming Midwest oil shale fields. Analysts are waiting to see how today’s oil producers respond to the current mismatch between growing supply and flat or declining demand in much of the industrialized world.

For now, it’s good times for all of us energy consumers. Longer term, a sustained period of lower prices would start to change our big spending habits, not just small ones. Would we still pay extra for a highly energy-efficient home? Speaking recently in Vancouver, Michael Luzier, president of Maryland-based Home Innovation Research Labs, said builders are already pitching added comfort, not cost savings. Sales of hybrid vehicles, from the luxury Tesla to the far more modest Toyota Prius, are declining or flat as consumers decide that fuel-efficient gasoline vehicles are green enough.

Who knows — maybe enough of us will jump back into larger cars and homes requiring longer commutes to drive prices back up and assure oil producers once again of handsome profits. Our indulgence will end when it costs us too much.