The good and the bad with coronavirus cutting gas prices

Wednesday, March 11, 2020
 | 
Chris Woodward (OneNewsNow.com)

oil rig crewAn expert on the economy argues that there are both pros and cons to today's low oil prices as the panic and spread of the coronavirus causes more and more travel bans around the world.

Nicholas Loris, an energy economist with The Heritage Foundation talked about the positives first.

"The biggest thing is that cheaper gas acts like a tax cut," Loris explained. "You're not just being helped when you go to the gas station but for all of the goods and services that rely on transportation and that's beneficial."

He also mentioned how consumer confidence is slightly hampered right now because of reaction to the coronavirus – or COVID-19 – but he also pointed out that academic research shows that gas price decreases positively impact consumer sentiment.

"So, if there is something that can actually help boost consumer confidence in this time, it's lower gas prices," Loris stressed.

The lows

Then comes the downside of low gas prices, where layoffs are always a real possibility.

"For a country that has now ascended to become the world's largest oil producer, when you have such cheap oil and the price to get that oil out of the ground doesn't make economic sense, there are going to be layoffs, there's going to be fewer capital expenditures, there's probably going to be bankruptcies and at the very least, consolidations among certain companies," Loris listed off. "We saw that happen in 2015 and 2016 when crude oil prices fellow below $50 per barrel, so we have seen a fair amount of companies go bankrupt in the United States, and in the past five years alone in North America, there have been over 200 bankruptcies."

Loris said there is no call for alarm, but warned that some negative economic trends could be ahead.

“[The negatively affected businesses represented a very small portion of overall production,] but there's still some financial trouble ahead for American producers – when you have prices at such prolonged periods of low levels," Loris impressed.

Prices fell this week in response to a lack of agreement between Organization of Petroleum Exporting Countries (OPEC) and non-OPEC countries to cut production. While it had a negative impact on the stock market, American Automobile Association (AAA) said the trend of pump prices facing downward pressure is likely to continue through the end of the winter driving season if crude remains cheap – especially amid concerns about the coronavirus.

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