The recent plunge in oil prices should be — mostly — good for the U.S. economy.
Cheaper fuel brings big savings for consumers and businesses — several hundred billion dollars since prices crashed from more than $100 a barrel to less than $30. Gasoline, diesel and heating oil make up about two-thirds of the roughly 20 million barrels of oil consumed in the U.S. every day.
Lower oil prices are also helping cut the U.S. trade deficit by slashing the cost of imported oil. And they’ve brought lower operating costs for shippers and other transportation companies, which helps boost profits and hold the line on the cost of travel and moving goods.
All in, the sustained drop in crude prices should add roughly half a percent to U.S. GDP, according to the Dallas Fed.
And the overall role of the energy sector on U.S. employment is relatively small, according to Dallas Fed economists. Oil and gas industry jobs as a share of total employment peaked in the early 1980s at less than 0.8 percent, and currently stand at about 0.5 percent.
Lower prices are expected to boost job growth in states outside the oil patch, according to analysts at the Council on Foreign Relations.
But those are national averages. Oil and gas producing companies and states are already feeling the pain, as new production plans are shelved, workers laid off and capital spending cut back.
Hardest hit are states that have seen the biggest job gains from the boom, and are most heavily reliant on employment in the energy sector, including North Dakota, Oklahoma and Wyoming. Other big producers like Texas, Louisiana and Alaska are feeling the headwind of lower oil prices.
That pain will intensify if crude prices fall further. Texas, for example, could see overall employment drop this year if prices stay below $30 a barrel, according to a separate Dallas Fed forecast released this month. The pullback in oil production is already spreading to other parts of the regional economy, including manufacturing.
“The Texas manufacturing sector is facing some major challenges — namely, low oil prices and a strong dollar,” said Emily Kerr, business economist at the Dallas Fed.
Some energy-producing states also face a major drop in taxes on oil production, which will cut into state spending and create a further drag on the local economy.
Among the top oil producers, Alaska has been hit hardest by the plunge in crude prices, largely because it relies so heavily on oil taxes.
Though it ranks fifth among crude-producing states, nearly 90 cents of every dollar of the state’s operating revenue comes from the oil industry, according to Moody’s. With oil prices trading at roughly a third of 2014 levels, Alaska’s take from oil taxes has fallen nearly 60 percent from last year. The state faces a $2.7 billion deficit in the current fiscal year.
Texas, on the other hand, is feeling a lot less budget pain. Though the state is the largest U.S. producer, it gets about 10 cents of every tax dollar from oil and gas production.
The state also has a much more diversified economy, which helps blunt the impact of lost revenue from energy production. And lower prices have even helped boost revenue, according to Moody’s, because lower gasoline prices have helped trigger consumer spending, which has raised sales tax revenue.
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Other oil-producing states are in bigger budget trouble. Louisiana, which counts on oil taxes for 16 percent of its general fund, has cut revenue projections for the 2015 and 2016 fiscal years by more than $300 million because of lower oil prices, according to Moody’s.
Oklahoma has also seen oil revenue dry up, and state lawmakers are projecting a shortfall of between $800 million and $1 billion in the state’s $24 billion budget.
As home to the Bakken oil field, one of the biggest beneficiaries of the U.S. oil and gas boom, North Dakota has also enjoyed a tax windfall from a surge in energy-production taxes. As of last year, these so-called severance taxes made up more than half of the state’s revenue.
But North Dakota is somewhat insulated from the crash in oil prices, according to Moody’s, because of changes in its tax structure that have reduced its reliance on energy revenue with a cap on oil revenue of $300 million every two years.