How Fracking Has Changed Our Future
How have oil prices affected you and your finances? It would seem that the price hikes that have occurred over the last month have made a bad situation even worse for many. Many people have lost money, have delayed necessary home repairs, have given up vacation plans, and even taken out new auto loans just to afford the gasoline that they need to get around. So what has changed?
As most of us know, demand and supply
are the key factors in determining the price levels of everything from food to gasoline. With the increased production on oil and gas fields as well as increased shipping activity, there has been an increase in the number of rigs across the country. Because of this, competition for available work has increased, forcing oil companies to either reduce prices or pass on some of the increases to consumers.
Because of this, the competition has increased and the price of gas
is now at its lowest point in over two years. This reduction in supply has pushed oil companies to either reduce prices or pass on the increases to consumers. If you are a consumer in the United States, you are probably also feeling the pinch. So where do we find these lower prices coming from?
To begin with, oil and gas prices
are dictated largely by demand. When there is more demand than supply, prices will naturally be lower. The current situation is no different; the increased production on oil fields has caused an increasing energy demand. But, with fewer rigs available to perform these tasks, companies are now reducing their staffing levels to meet this growing demand, thus causing prices to stay lower.
This same principle applies to the construction industry.
When there is an increase in the number of drilling rigs, the demand for new housing spikes. However, with fewer workers, the number of new construction projects also decreases. Because of this, overall demand is still relatively high. As fewer people are buying new homes, fewer people are renting their houses. Therefore, overall demand is still relatively high despite the drop in prices.
In the mining industry
demand is based primarily on the demand for materials. As more people continue to invest in building new structures, the need for more skilled tradespeople also rises. These tradespeople are needed to build the new houses that will be constructed. As the supply of housebuilders drops, the demand for home builders also drops. Because there is so much demand, these builders are forced to reduce their prices or pass on any discounts they receive to consumers, thereby reducing their profits and making it harder for them to compete with other contractors.