Analysts Predict OK's Economy Will Be Negatively Affected By Crude Oil Price Drop

Motorists across the country are enjoying the low cost of gasoline, although some here in Oklahoma may be hoping it doesn't go any lower.

That's because the gas prices are tied, of course, to the price of crude oil, which is at a point right now that is making it difficult for the state's oil and gas industry to maintain current employment levels.

At just over $40 dollars a barrel, crude oil is sitting at a 6-year low, and most analysts believe it will sink even lower into the 30's.

That's not what some were predicting, as recently as a month ago.

In July, oilman Boone Pickens was bullish on crude oil, saying it would be up to at least $70 a barrel by year's end. And while that's not out of the question, it seems more and more unlikely.

Analysts say the reason is simple supply and demand.

Here in the U.S., they say production has gone from five million barrels to gallons a day, five or six years ago, to nine million now. And even last month, while the rig count was dropping, production was still increasing.

In addition, they say OPEC nations like Saudi Arabia are not cutting production, as they do not want to lose market share. Also, oil from Iran is now starting to trickle back into the equation.

Worldwide, there's just too much supply right now, analysts say.

The upside is low gasoline and diesel prices, and cheap fuel for manufacturers. But in Oklahoma, continued low oil prices will negatively affect state revenues from the gross production tax, analysts say, and could lead to more layoffs.

"To the extent it stays in the $40 range, and I'm talking about $40 to $45 or lower," said Steve Agee, Dean of Oklahoma City University's Meinders School of Business, "we could see additional job cuts. I mean, that just very severely impacts the cash flow of these exploration and production companies."

Agee isn't predicting where crude will bottom out, but he says it will, because supply will begin to drop and demand will increase.

In the meantime, Agee acknowledges that some local oil and gas companies, whose stock is bottoming out, could be vulnerable to a takeover attempt if one of the big guys was so inclined.