How Low is Too Low for Gas In Houston?

Just a few months ago, sixty or seventy dollar-a-barrel oil was unheard of, but the recent drastic drop in prices now means 2-dollar-a-gallon gas in some parts of Houston.
Lower oil prices in the nation’s energy capital would
usually be bad news, but energy experts say prices would have to drop quite a bit more to begin really affecting our local economy. Jack Williams reports.


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So how low is too low when it comes to oil and gas prices? It’s a question most consumers could not have imagined over the summer, but Houston energy analyst Alan Lammey say prices would have to keep dropping to really start hurting our local economy.

“For the most, I think that $60 a barrel, or even $55 a barrel oil is still a fairly healthy price. Gasoline prices dipping down closer to the $2 range at the pump right now is a healthy thing for the consumer to be able to at least have a little period of where we can all kind of enjoy some of these little bit lower energy costs while we’re in a deflationary period.”

Craig Pirrong is the Director of the Global Energy Management Institute at the University of Houston’s Bauer College of Business. He says nobody should feel guilty about the cheaper gas, but they should look-out for the broader economic downturn.

“It wasn’t too long ago that gasoline was $2 and people thought that was kind of expensive and Houston was doing just fine then. I think the more serious problem, not for just Houston, but for the rest of the country, is the fact that the oil price is sort of a canary in a coal mine. It’s signaling that the overall economy, not just in the US, but in the world is weak and Houston will not be able to escape that. ”

But Amy Jaffe, who’s director of The Baker Institute Energy Forum at Rice University says if Houston does feel the pinch, it won’t be very painful, at least for now.

“In terms of the oil industry contracting, I really think it would take a price of $30 a barrel or $20 a barrel or maybe $40 a barrel for some kinds of projects before we would really start to feel that impacting the energy industry here.”

She says oil prices right now are where they probably should have been all along.

“This whole idea that $60 or $70 a barrel oil is somehow a “low price” is really unrealistic. The whole path to $150 was really just an aberration based on speculation against the dollar with the falling dollar and a lot of investor classes moved to oil as a premium investment class as opposed to it was based on the supply and demand fundamentals of the market. That’s why it fell so quickly, was that it was based on some financial play.”

She says most oil and gas companies realize demand will eventually return along with the need for workers. She says most companies have learned from mistakes in the past and won’t likely lay-off workers in large numbers during a temporary price downturn.

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