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Another year without Santa

Sam Fletcher
Senior Writer

With the Christmas holidays approaching, members of the oil and gas industry are anticipating stockings full of rocks from the new Santa-elect in Washington, DC, while other industries' wishes for bundles of cash will come true.

"We are seeing trillions of dollars spent by governments around the world to 'bail out' all types of businesses that are 'too big to fail.' Where were these guys when energy businesses were failing in the mid 1980s?" complained analysts in the Houston office of Raymond James & Associates Inc.

They then answered their own question: "Energy is considered a necessary evil by most politicians and consumers. The reality is that rising energy prices are generally bad for most developed countries (especially the US) and falling energy prices are good for most of the world."

Low energy prices are so good, in fact, that it will provide consumers with a 2009 "dividend" that will rival the size of all the announced bailout plans around the globe, said Raymond James analysts. "Based upon our 2009 estimated energy prices, a rough estimate of the potential beneficial impact of lower energy prices for global consumers next year is about $1.7 trillion or 3.2% of global gross national product," they reported. That includes lower prices for oil, gas, and coal.

Political influences
It's true, however, that some industries are too big—both in numbers of employees and political clout—to be allowed to go under. The Bureau of Labor Statistics reported 850,100 people employed in the US manufacture of motor vehicles and parts in September. That jumps to 1,572,200 workers if manufacture of all transportation equipment is included, from cars to garbage trucks and recreational vehicles.

Energy prices fell Dec. 12 as Democrat and Republican Senators split along party lines on a proposed $14 billion bailout of General Motors and Chrysler. The companies eventually will be rescued, however; campaigning Democrats promised to put US voters back to work and therefore can not add thousands of auto workers to the unemployment lines. Both the number of unemployed persons (10.3 million) and the unemployment rate (6.7%) continued to increase in November. Since the start of the recession in December 2007, the number of unemployed workers increased by 2.7 million, and the unemployment rate rose by 1.7 percentage points.

As for the petroleum industry, US Department of Labor statistics list 9,320 workers employed in oil and gas extraction in September; 1,760 in pipeline transportation of crude; another 2,090 in "other pipeline transportation;" and 22,390 in "petroleum and coal products manufacturing." Even if the oil and gas industry could claim all of those employees, that totals 355,500 workers. Not only does it fall far short of the numbers making autos and parts, it's even less than the 379,000 people working in motion picture and sound recording; 428,000 employed in performing arts and spectator sports; and 867,000 in publishing (excluding the internet). What's more, a greater percentage of workers in the four other industries are likely members of unions that have political influence with the incoming administration.

Even among major oil producing states, oil industry workers are a minority accounting for 41.7% of total employment in Alaska; 31.5% in Louisiana, 17.9% in Wyoming, 13.1% in Texas, and 12.5% in Oklahoma, according to DOL. Of those, only Texas is among those states with the biggest populations, and it has sided with the Republicans more than the Democrats in recent years.

One out of five auto manufacture jobs are at Big Three facilities in the Detroit area, but 61% of all automotive workers make vehicle parts in Michigan, Ohio, Indiana, Tennessee, Illinois, Kentucky, New York, California, Pennsylvania, and North Carolina, several of which are key states in presidential primaries.

It's no wonder then that only oil workers and some representatives of producing states are dismayed when oil prices plunge. But as Raymond James analysts previously pointed out, low oil prices are their own best cure.

The "material savings" from lower fuel prices "should facilitate a gradual recovery in oil demand, though the timing of this process will largely depend on the pace of macroeconomic recovery," the analyst said, adding, "While macrovisibility is still minimal, we believe that our current working assumption of a 2% decline in 2009 global oil demand will probably prove overly aggressive. Once oil demand begins to rebound within the context of broader global economic recovery, it should support a sustained rise in oil prices, hence our gradually rising price forecast beyond the lows of the first quarter of 2009."

(Online Dec. 15, 2008; author's e-mail: samf@ogjonline.com)


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