What Would Happen if Oil Prices Continued to Drop?

Anybody who owns a car or reads a newspaper will have noticed a distinct drop in oil prices over the last year. This is due to a number of different reasons, including a decreased global demand, a sudden proliferation of supplies (in part thanks to fracking), unrest among the member nations of OPEC and concern about our environment. All of these factors are discussed in more detail in the article Why Are Oil Prices Dropping?

Most people assume that the current trough in oil prices is merely temporary, and as oil supplies continue to dwindle, the prices will rise once again. Though the recovery of oil prices is by no means assured, it is certainly likely. But what if it didn’t come to pass? How would individuals, countries and global society be affected? Here are some of the potential consequences of a continued plummet in oil prices.

Renewable Energy Will Be Delayed

Many environmentalists have been campaigning for a move away from fossil fuels for cleaner, renewable sources of energy such as wind, solar and wave power. While some of these methods seem to be gaining a head of steam – with solar power in particular making great strides in terms of efficiency and affordability – cheap oil prices could put a spanner in the works.

Because of the advent of fracking, renewables have been postponed somewhat, since many see fracking as a way to prolong the amount of crude oil we have left available to us. Even President Obama called fracking a “bridge” to renewable technology – but if prices stay low, there is a danger that the bridge could never really be built.

Oil Extraction May Be Abandoned

For everyone involved in the oil extraction business, high prices are vital to making a profit. For smaller companies, this profit can mean the difference between survival and bankruptcy. If oil prices continue to plummet, there will come a point when it no longer becomes financially worthwhile to mine for the substance.

Such an occurrence would lead to the loss of jobs and mass debt of businesses and even national economies, with fragile oil-rich countries such as Venezuela and Nigeria most at risk. It would also lead to a dearth of oil supplies… which would drive prices back up, eventually. But that could be too late for many. 

The Consumer Won’t Even Benefit

Of course, low oil prices sound great in theory, and although the cost of filling up our tanks may be cheaper, the real benefits are being reaped by larger corporations. Airlines, for example, simply increase the number of available flights instead of reducing prices, which means that ultimately, passengers do not benefit at all from the price drop. Airline tickets will only really drop in price once the demand for seats falls… which isn’t likely to happen anytime soon.

Meanwhile, fuel companies are quick to add surcharges to fuel prices when oil costs are high… but seldom offer rebates when they are low. Therefore, it’s the corporation, not the consumer, who is the winner – at least short term.