The Impact of Declining Oil Prices

Keep your eye on the price of oil over the coming weeks. Right now, the U.S. produces more oil than both Saudi Arabia or Russia and this has resulted in the creation of millions of jobs.

Unfortunately, the shale oil boom is coming to an end and OPEC has declared a price war on U.S. shale oil producers. This has happened before.

In the mid-80s, as oil output from Alaska’s North Slope and the North Sea came on line, OPEC set off a price war to compete for a market share.   As a result, the price of oil sank from around $40 to just under $10 a barrel by April 1986.

The U.S. industry collapsed by 90-percent and the Saudis regained their leading role in the world’s oil market.

There has only been one other time when the price of oil has crashed by more than 40 dollars in less than six months — that was during the second half of 2008. The beginning of that crash preceded the great financial collapse that happened later in the year.

Finally, as the average American currently enjoys paying less at the pump, we are going to be hurt by the falling prices. Several states rely on oil revenue taxes to fund their annual budgets and have factored into their spending projections prices above $100 for the fiscal year of 2015.

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