For most Americans, lower oil prices are like a tax cut or a raise in pay. In some parts of the country though, lower oil prices are costing serious money and putting jobs at risk.
When discussing winners and losers from changes in oil prices, people are used to talking about oil-producing nations and oil-consuming nations. However, as the U.S. has ramped up its oil production in recent years, the national picture has become more complicated. Some areas of the country produce more oil than they consume, while others are heavy consumers that produce little or no oil.
Thus, in talking about the impact of changing oil prices, it is necessary to think about oil-producing states versus oil-consuming states to get a clear picture of who benefits -- and who loses -- when oil prices fall.
The places cheap oil can hurt
MoneyRates.com looked at two factors to determine which states are being hurt the most by falling oil prices:
- The net dollar impact -- factoring in both production and consumption -- per capita
- The potential damage to the employment rate in the state
The list yielded some surprises. For example, when you think of oil-producing states, you might first think of Texas, and indeed, Texas is the nation's biggest producer of oil. However, Texas is also the top consumer of oil, so this helps offset the impact of falling prices. Texas is among the 10 states that are most vulnerable to the negative effects of falling oil prices, but it did not rank No. 1.
No, the state which stands to be hurt most by falling oil prices is North Dakota -- which is not surprising since the state's economic boom in recent years has been fueled by rising oil production and strong prices. MoneyRates.com and others have on several occasions documented the economic benefits North Dakota has reaped from high oil prices, but now they are feeling the sting from the other side of that double-edged sword.
The following is a breakdown of which states are suffering most from falling oil prices, and why.
1. North Dakota
North Dakota ranks behind only Texas in total oil production nationally, and is in the top 10 in oil-related jobs. What clinched its spot as the state most impacted by lower oil prices is that because it has a small population, the oil business represents a major portion of its economy. North Dakota has the second-highest proportion of its workforce engaged in oil and gas production, and the net negative impact of the drop in oil prices works out to a whopping $15,920 per person in the state.
About 6 percent of the jobs in Wyoming are related to oil and gas extraction, making it the only state to exceed North Dakota in the portion of its workforce at risk from lower oil prices. Because Wyoming's production of oil exceeds its consumption, the net dollar impact of lower oil prices is negative here, and represents the third-highest per-capita loss of any state.
This state's appearance on the list won't surprise many people, since Alaska is well-known for its oil production. That production compared with Alaska's small population means the collapse of oil prices has an outsized impact on this state.
This is another state with a relatively small population but a big reliance on oil. Oklahoma ranks second only to Texas in its number of oil and gas production jobs, and is fifth nationally in crude oil production.
5. New Mexico
Though it has less than a million jobs across all occupations, New Mexico ranks seventh nationally in oil and gas production jobs. Along with that, it ranks sixth in crude oil production, so the drop in prices is going to hurt here.
As the state with the fourth-largest oil and gas production workforce, and as the No. 8 producer of oil nationally, Colorado will feel the pinch from lower prices.
Neither the total number of oil-related jobs nor the amount of oil produced in Montana rank in the top 10 nationally, but relative to the state's small population the industry is a significant part of the economy.
Though Texas ranks No. 1 nationally in both the number of oil-related jobs and the amount of oil produced, its large population and diversified economy help soften the impact of falling oil prices, which is why it is not higher on this list.
This state is the 10th largest oil producer in the nation, and though the number of oil-related jobs ranks outside the top 10, relative to the state's somewhat small population it's enough to have an impact.
This is another state where a relatively small population will exacerbate the impact of the financial hit the state's oil industry will take from falling prices.
Because the U.S. is still a net consumer of oil, the winners from lower oil prices will outnumber the losers. For example, states such as Hawaii, Iowa and Maine that produce no oil are the big winners from falling oil prices, because their costs of consumption will fall.
All of this is a reminder that the U.S. is not just one big economy. It is many regional economies with different strengths and weaknesses. As the states listed above are finding out, the strength of being a major oil producer has suddenly turned into something of a weakness.
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