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Cheap oil feels like good karma

By Staff | Jan 15, 2016

Inflation calculators are one of our favorite things about the Internet.

It’s interesting to plug in the current cost of, say, a pound of ground beef and see that paying $4.20 today is the equivalent of paying 79 cents per pound in 1973 dollars.

It becomes an even more interesting exercise for commodities that fluctuate wildly, like gas or home heating oil.

According to the Governor’s Office of Energy and Planning, the statewide average for a gallon of gas is $1.99, which works out to about 37 cents a gallon in 1973 dollars. You could still get gas for that price back then, though prices escalated rapidly starting in November 1973 as a result of the decision by Organization of the Petroleum Exporting Countries to cut back on production. The Arab oil embargo, as it was known, caused U.S. energy prices to spike and by the spring of 1974, the price of a gallon of gas had climbed above 50 cents per gallon.

It was a classic case of supply and demand, which also explains why prices have fallen in recent months. U.S. oil producers have doubled their output, which has caused the price of oil to drop by about 70 percent in the past 15 months.

How does it feel to be paying mid-1970s prices for a gallon of gas?

To paraphrase a popular 1973 song by Tony Orlando and Dawn: Tie a Yellow Ribbon Round the Ole Gas Pump.

If it feels like karma is evening things out for all the times we were paying through the nose and it felt like we were being gouged, it’s more than that. There are tangible benefits to having lower prices for gas and home heating oil.

Energy expenditures accounted for 8 percent of New Hampshire’s Gross Domestic Product in 2010, according to the state energy office. Lower prices leave more money in the pockets of New Hampshire residents and businesses.

They are especially helpful to people at the bottom of the economic ladder, who pay a higher portion of their incomes for energy costs.

If there’s a downside, it’s being felt mostly in oil-producing states. This is, admittedly, a tough time to be in the oil business, especially for small operators. According to The New York Times, about 70 producers have filed for bankruptcy protection, and some of the oil giants have implemented layoffs in response to the softening market.

The price of oil briefly dropped below $30 a barrel this week – the first time that has happened in more than 10 years – and there are fears it could drop below $20 per barrel.

As it turns out, $30 has the same buying power as did $5.61 in 1973 dollars, according to the trusty inflation calculator. Wouldn’t you know it – that was about what a barrel of oil cost before the OPEC-
driven price spike.

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