This week, the average cost of a gallon of gasoline in Mississippi dipped below the $2-mark.
The average price in the state is at $1.98 — 36 percent less than a gallon of gas this time last year, when it cost $3.11 per gallon, according to AAA.
That means considerably less “pain at the pump” for consumers and a dramatic drop in costs for businesses that rely heavily on fuel, which could mean higher profits for the business and lower prices for the consumer.
It’s all good, right?
Maybe not.
Economists warn the free-fall in gas prices over the past year may ultimately have some unpleasant consequences.
While fuel industry experts predicted a drop in gas prices as far back as February of 2013 based on increased domestic production, the decline in recent months has been greatly attributed to Organization of the Petroleum Exporting Countries’ decision to step-up Middle East production as means to undercut competition.
It is a strategy that the oil-rich nations of the Middle East can afford to pursue infinitely: Analysts say it costs as little as $15 per barrel to produce a barrel of oil in Saudi Arabia while the same barrel produced in the U.S. can cost as much as $70 per barrel to produce.
As of Friday, the cost of a barrel of crude oil was $48.21, the first time the price has dipped below $50 per barrel since May 2009.
That might force U.S. companies to scale back domestic production, which could lead to lay-offs, not only in the oil industry, but on other industries who provide material and supplies used by oil companies.
Of Golden Triangle industries, Steel Dynamics has the closest connection to the oil industry.
Although the Indiana-based company, which purchased Severstal in September, is not heavily invested in providing steel products used by oil companies, much of the rolled-steel produced at its Columbus facility is used for tubes and pines used by the oil industry for drilling and transporting oil.
“It’s understandable that people would have concerns,” said Steel Dynamics Vice President Chris Graham, who is in charge of the Columbus facility. “While we as a company have a small exposure in the pipe and tube world, Columbus probably does more pipe and steel work than any of our other companies.”
Even so, Graham says there is no need to fear that the Columbus facility could be in jeopardy because of the current state of the oil industry.
“Our track record is that we don’t lay off (people),” Graham said. “That’s the furtherest thing from our mind.”
Graham said there are no plans to move away from tube and pipe production at the Columbus facility to date, although he is confident that the facility could easily convert to other products.
“What people need to know is that Columbus is not a tube-and-pipe plant — it’s a rolled-steel plant,” Graham said. “We have chosen to be in the tube-and-pipe business, but the great thing about our facilities is that we can make anything at any of our companies, including Columbus. We’re not a company that has all of our eggs in one basket. We have a very diverse product market.”
Noting that other steel suppliers have already started to retreat from producing oil industry-related products, Graham said it might even present a window of opportunity.
“You could make the argument that (other companies) getting out of the pipe-and-tube market doesn’t hurt our position in that area,” Graham said. “But no matter how it turns out, we’re well-positioned, whether that means continuing with what we are doing now or transitioning into other products.
“The bottom line is we are buyers, not sellers.”
Slim Smith is a columnist and feature writer for The Dispatch. His email address is [email protected].
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