NEW YORK (TheStreet) -- In a world with plummeting oil prices, who are the winners and losers?
As a previous article published by TheStreet indicated: OPEC has a tenuous hold on oil markets, and its recent decision to forgo a reduction in capacity to attempt to squeeze out higher-cost shale producers has put a serious hurt on oil prices and, as a corollary, energy stocks.
By now most have noticed the positive consequences associated with declining oil prices at the pump. While the consumer undoubtedly benefits from the resulting increase in discretionary income, cheap oil actually possesses a very stratified impact that most wouldn't readily realize. That's why we're here to present both the winners, and the losers, in a world with cheap oil:
- Petro states
Economies that rely on oil prices to buttress their income and balance their budget are in deep pain right now. The OPEC decision was not a consensus, but rather the Saudis prevailed over the poorer OPEC nations with a promise of buoying oil prices by making it uneconomical for American producers to continue. That would transfer the cuts to the West and allow OPEC to maintain market share. But the fiscal pain in the interim will be very real for the following countries, all of which require an elevated oil price to balance their budgets:
- U.S. states involved in the shale boom
Cheap oil doesn't hurt just the aforementioned; it will also have some negative ramifications for select U.S. state's economies that have flourished and grown accustomed to elevated oil prices. Barclay's analyst Thomas Driscoll finds shale economies to be robust between $75 and $80 a barrel and some analysts have even contended production is simply not viable at sub-$80 prices. As detailed in this microeconomic account from North Dakota (home of the Bakken oil field), the state may need to reconsider its budget for the next two years as the current one was created factoring in $90-a-barrel oil. This lack of profitability will permeate to local economies as less revenue is made, energy-related jobs are lost, less taxes are collected, and spending is pared back. Such states as Wyoming that are seeing a disparate boom in their economies, as reported by CNBC's Steve Liesman, are increasing spending, especially on education; with the superintendent even giving area teachers raises "because we can." Sadly, this may abate in the face of cheap oil.