Trump has been boasting about the drop in gas prices lately, and he does have more of a case than usual. Gas prices are actually down by a bit more than 3 percent from their year-ago level, although diesel prices are up 5 percent. (It’s not clear what Trump has against truckers.)

Anyhow, the cause is not a mystery. After soaring following the pandemic reopening and then rising further after sanctions were imposed on Russia’s oil following its invasion of Ukraine, the price of oil has fallen below $60 a barrel. This is good news from the standpoint of cheap gas, but it’s not good news from the standpoint of the US oil industry. 

Adjusted for inflation, the current price of $57 a barrel is less than the price of oil in 2016, when production and employment in the industry plummeted. At that time, many of the companies that had rushed into fracking in Texas and New Mexico when bankrupt, as the price no longer covered their costs. Employment in the broader mining and logging category went from a peak of over 900,000 in 2014 to a trough of less than 650,000 in 2016, a drop of almost 30 percent.

Oil prices rose somewhat later in the decade and some of these jobs came back, but employment never approached the 2014 level. However, with real oil prices now below their 2014 level, the question is whether there will be another bust in the oil industry.

Already, the number of rigs has been declining as many producers are putting off new drilling. Employment is down by more than 30,000 from its level of two years ago. And there are reports of further layoffs to come. 

Low oil prices are a result of not only the Biden-Trump policy of promoting drilling, but increased production worldwide following the pandemic price jumps, and slower demand growth due to the spread of EVs and clean energy. While betting on the oil market is a dangerous game, there are good reasons for thinking the price is more likely to go lower than higher.

Most immediately, there seems a reasonable prospect of some sort of settlement in the Russia-Ukraine war. Any settlement will almost certainly lead to an end of sanctions on Russian oil, which would increase the amount of oil on world markets by millions of barrels a day. There is also the possibility that Venezuelan oil could come back on world markets, either through Trump overthrowing the current government or a rapprochement with Maduro. 

World Demand for Oil Could be Falling Soon

On the demand side, EV sales are rapidly growing in markets around the world. In China their share is already well over 50 percent of the market and rising rapidly. China is also exporting low cost, high quality EVs to the rest of the world leading to rapid growth in market share elsewhere. 

China has also hugely reduced the cost of wind and solar energy, as well as battery storage, leading to huge growth in clean energy use in China and many other countries. If these trends continue, oil demand is likely to be headed downward in the not distant future. This could mean that oil prices fall even further from their recent levels.

Low oil prices are bad news from the standpoint of moving away from fossil fuels, but given the low-cost of buying and maintaining EVs, low oil prices may not matter much in countries outside the United States where people have the option to buy them. That’s unfortunate, since we will effectively be freeloading in getting the climate benefit of other countries’ greenhouse gas emission reductions, but it will hardly be the first time the United States was a freeloader. 

Low oil prices also will have the advantage that they will undermine Trump’s effort to destroy the country’s environment for future generations. Drilling on the north slope of Alaska and other formerly protected areas will not be profitable with oil prices under $60 a barrel. As much as Trump might be trying to turn America into a shithole country before he leaves office, cheap oil can undermine his efforts.

Learning to Love Cheap Oil

A serious government would be doing everything it can right now to promote a rapid reduction in greenhouse gas emissions. Whatever Donald Trump might think, he can’t stop global warming by executive order. But we don’t have a serious government, we have Donald Trump and his lackeys in the House, Senate, and the Supreme Court.

However, his efforts to promote drilling everywhere may have some desirable effects. It could financially devastate his friends in the oil industry. It will be unfortunate that oil workers will lose jobs, but seeing the share prices plummet of the companies that pushed lies about global warming for decades will be a pleasant sight. And the economics may save environmentally sensitive areas that we currently lack the political force to protect. All in all, not a bad story.