Gas less than 3 an gallon, couldnt be anything wrong with that . Turns out the plunging price of oil has domino effects in all different directions. Thats inside story. Hello, im ray suarez. In the last 30 years when the price of a barrel of oil has zoomed its been painful. Household budget strain. Industry struggling to keep up with cost. Pressured upwards to the making and moving goods. In the last few months the cost of a barrel of oil has fall finance 115 to 80. Good news, right . But like any good tale involving crude, the answer is more complicated than that. Prices at the pump are finally helping to keep pocketbooks plump. The average cost of gas per gallon around the u. S. Is now 3. 04, the lowest since 2010. We travel a lot more. Go home more. Its nice. In 17 states the price of gas is under 3 a gallon. Only deal necessar dealers in hawaii charge more than 4. Since june oi gas has dropped 0. 005 per day. In june the International Oil said that the u. S. Beat russia in energy extraction. Now a barrel costs around 80. But only analysts Chris Edmunds warns this bottle of the barrel price could spell trouble for domestic producers. At 80 to 85, you begin to hear companies talking about cutting back. At 70 and below you see Companies Cut back. And the u. S. Companies are not the only ones affected by this cheapening commodity. In europe, demand is slow due to a weakening economy. In china it is shaking up the market. And places reliant on High Oil Prices like iraq, iran and venezuela, domestic and foreign policies may shift as governments have less income. The meeting of opec is scheduled for late november in vienna, austria where price, supply and demand are sure to top agenda items. The plunging price of oil today on the program, who does it help . Who does it hurt . How long might the price of this recently volatile commodity stay low. Investment houses have predicted a per barrel cost. Goldman sachs has gone to 70. Joining us for that conversati conversation, professor of International Finance and business at George Washington university, and visiting Research Fellow at the kay toe institute, and senior fellow and director of the Energy Security initiative at the brookings institution. Is this at least domestically nothing but a feelgood story, especially those who are end users. I do believe producers based in terms of existing production will weather the storm better than people realize because when people say at 80 we collapse, i dont share that view. I think we can go a lot lower and keep our existing production but certainly no one is going to rush out and drill new wells at these prices. Professor, walk us back from the pump backwards . What happens when on the worlds stock market the price of a barrel of oil begins to drop. Its key of why its dropping. What we have is a perfect storm. Gas and shale are coming online. We know its coming online. Right now the saudis are in the game. This is in over supply right now. There is bidding for storage. There is no disruption in refining and the saudis are oversupplying the world for a lot of reasons, geopolitical reasons and economic reasons. Perhaps theyre helping the u. S. Tackle the russia issue. Because at 100 a barrel putin has a problem balancing its books. Secondly, as the price of barrel goes lower, it brings down the production of shale oil. There is debate about what that price is, some say 70, some say lower. I believe it is lower, and then there is the iran issue. Dont under estimate the saudis are fully aware this is hitting the runyons quite hard. There are a lot of other issues. Most importantly longterm price of oil is dependent on growth. Thats what you mentioned in the opening of your introduction, europe is basically flat, and the mint countries, malaysia , indonesia, it is not enough jump start the economy. When opec really had the wh whip hand and could cause gyrations in World Markets after their meet negotiation middle europe, countries could open and close the taps at will. But have things changed to the degree that even when prices are low they need that money coming. There are some states in opec, the saudis in particular, they are far more concerned with a global longterm price of oil. They want it to stay stable. They want it to stay stable in the long term. But other opec members states like venezuela, states like iran, as mentioned, theyre extremely dependent on the shortturn revenue they get from this oil. And so the iranians have asked the saudis to stop producing so much, but the saudis are very well aware that the iranians cannot handle that. Practically the countries in it are experiencing different things. Short answer, some places cant leave it in the ground. They just cant. Yes. Venezuela in particular. The vegetable government is on the brink of default. Chavez and his successor ran up social policies, economic changes. They used their oil to bail out countries, cuba, and thats now coming home to roost. They spent money, its now coming due, and the oil is not worth as much as it used to be. Its deeply devalued. They began to withdraw some of the subsidies on consumer goods, is the next step having to go to the barbados, haitians, others, saying we cant do it any more. We cant afford it. Thats absolutely the case. But keep in mind that we can take a longterm view, and its hard for venezuela to take a longterm view, this is a country that has resources greater that saudi arabia, and in the right leadership in a 10year, 20year horizon, it could be a powerhouse in the market. We jump in the way of Big International intrigue, but the world has just gotten a raise, hasnt it . In some ways. If you head to the Grocery Store somewhere in the world. If youre gassing up a motorbike, a truck, you just have gotten a little raise. Basically they have, but on the domestic truck and the international front, at the people level, this is all good, except for the major oil exporting countries. Theyre going to take a hit. But having said that, youve got to understand the medium to longterm view here. There is a lot of stuff coming down the pipeline that will keep oil low, and thats the new normal now. Youve got shale oil coming online, and Lockheed Martin just released announcement that fusion is the new Great Nuclear power over the next five or ten years. Who knows. You said the last time. Yes, i know. Lets hope this one is for real. But even as you take that out of the equation and youre just taking a look at shale oil and gas there is enough pressure in the system. And saudis can keep this up for a while. They have 7 billion in reserves, and you ask if other countries can be swing states, and the bottom line is no one can, and its just the saudi game right now. They can keep it low for quite some time at quite low prices. But theyre just delaying the inevitable. Opec has lost some power in terms of setting prices now. Because there is so much supply, and nonopec producers can do what they want. That, and longterm economic growth, which is the driver of i8 oil prices always. Once oil becomes cheap, taking the pressure off to find a new answer quickly . Almost definitely, yes. The fact is people tend to be opposed to conservation because its a hassle. If oil prices are lower, then they will less likely to invest in those. Were seeing these in the European Union. The European Union wants to extricate itself from being so dependent on russian oil. One of the ways they plan on doing that is renewables. If oil gets cheaper, they may be less inclined to do that. When we return with more inside story in just a moment well continue our look at vulnerable redream regimes that fund their operations through crude oil. They cant let it sell cheap, but they cant let it sit in the ground because they need it today. How does that play out in one year, two years, five . Stay with us. Were back with inside story. Im ray suarez. My car specifies high test gas. When it was crazy expensive i would drop a grade or two because it seemed crazy to pay that much money for a tank of gas. The other day, the cheapest price i had seen in years. If you work your way back from a pump in delaware to the world supply chain whose anguish matches my joy at the pump . Right now the United States is producing a huge amount of oil and natural gas. When the price of crude oil drops what happens to gas and its relationship if there are buyers of energy who can switch back and forth between the two. If there are, youll tell me. What happens to gas . How is gas affected by oil . Well, obviously gas gets pumped up, no punish intended. But one has to be a little careful here. While you may enjoy filling up the car with the highest premium there is a doubleedge sword. States like texas, where if you look at the oil tax revenues are coming out of taxes paid on oil over 4. 6 billion. Its 4 billion in alaska, and 2 billion in north dakota, there are states that are going to be hit by this. There is that element of it. And in a notsodistant future the u. S. Is going to be an exporter of energy, not an importer of energy. Transition is coming whether its five years from now to ten years from now. It is a doubleedge sword, and i believe the low oil prices will be enjoyed for the short term. But if im running my plant with fossil fuels in order to carry on whatever process im doing, didnt i also just get a raise . Because running my looms or my mill or my Packaging Machinery also just got cheaper. You certainly do, ray, and its been shown, for example, that a lot of refiners have converted using natural gas in place of oil as a fuel and operations. If i could make one point, most forecasters look at 20 to 25 years still believe were looking at a change in the World Oil Market from 90 millionbarrels consumed worldwide today to somewhere close to 130 millionbarrels in the future. Those numbers can be adjusted, but it shows in the long run as india, china and other countries resume their economic growth, we have to refine oil in the world. Year. We have to replace that oil before over all production. I think in the long run people are estimating by twenty20 that china will have more cars than america. It has to run on petroleum, and thats the critical factor. The next few years could be painful. To find that equivalent. Theyll drill anywhere, everywhere, under any circumstance, is that hunger going to ride roughshod over places that people say we cant drill here safely. I think until the last six months or so it was driving people to look more at the shale gas, shale oil, but in a period where were seeing Oil Prices Falling so fast. Saying that the revolution is oil if oil becomes too cheap. Where do you come down on that . I agree. Those guys who are making 100,000 a year with a high school diploma, and flying out to places in wi lliston, they want that to happen as well. Will it be the same . The north dakota did a study of this exact question and came up the best fields in the balkans will remain 28 a barrel, and higher cost fields will be at production at 42 a barrel. That does not say what you would do if you were drilling today. These are existing wells that have largely been because they come on so fast and crash downward have largely been depreciated through the tax code. What about new production, will it punch a hole in the ground. No, new production youre certainly going to cut back on. Which has consequences with state revenues, but also for the United States treasury, professor . Yes, ultimately it depends on, again, and i keep coming back to this. Its growthrelated. All of this is growthdriven. Yes, the u. S. Treasury is going to take a hit if some states revenues drop. These are pretty large states. Talking about texas. But the other part of the puzzle here is were winding down q 3, and it will be less the pump. Were teetering when people are coming back. Theyre being able to exhale and things are getting better, and the consumer mind Lower Oil Prices means that things are stabilizing and getting better, but in the economic view this is a doubleedge sword. There is an he is say in this weeks economist magazine called deflation. They say even as little deflation as there is in the world, it would be lower still with this Lower Oil Price leaving some economies teetering on dropping prices at a time of very small or no raises, which sets you into that cycle of people hoarding money because they think things will be cheaper if they wait to buy them. I think this is Janet YellensWorst Nightmare that oil prices have dropped so fast and so quickly, for that precise reason. But i do believe in the long run, because we are going to be more energy sufficient, and exporting energy at some point down the road, this is a winwin for us. Its just managing this mediumterm and shortterm phenomenon. When we come after the break, what if the price of oil stays low for a while. On the world stage you would see spike in crisis. Iraq is in chaos. Syrias pipelines are in meltdown. Libyas tumult continues, and a barrel of oil costs 79. As a commodity is oil behaving differently . Are we no longer as jittering in pricing in the risk . Stay with us. Welcome back to inside story on al jazeera america. Im ray suarez. The price of oil today on the program, you may already notice that the price of gasoline is declining. The price of oil, goods pushed out by the price of petroleum. Food, clothing, heating and cooling your home may take longer to respond. How will this countrys economy and the world respond to a lon longer spell of low prices . Still with us, a professor of International Finance and business at George Washington university. An investing Research Fellow at the cato institute, and senior fellow and director of the Energy Security initiative, and emma ashford, iraq, which is supposed to be rebuilding itself using oil revenues. Harder to do at 79 a barrel than 125. And iran funding groups here and there all over the middle east, creating mischief, lets say, to put it most charitybly. Most of these things become more difficult when youve got a lot less money coming in, doesnt it . Absolutely, yes. And there are several countries that really are going to be very worried about this, you named iraq, iran, also venezuela, russia in the longterm, not so much in the immediat mediumterm, and in all these states their dependence on balancing their budgets on 100 a barrel. 120 in iran and in venezuela, theyll have massive shortfalls. Lets look closer at russia for just second. Does this spell of lower prices mean that the people on the other side of the table have a little more bargaining power, as both western europe and placing like the ukraine try to broker deals for longterm contracts for natural gas, lets say, or liquid crude . Well, in the shortterm im not sure it prison a great deal of leverage. Certainly it may stop russia from monkeying around with the gas supply this winter as they have done previously. They shut off the gas to ukraine in 2006 and 2009, though may an disincentive that prevents them from doing this again this winter. But russia has large reserves theyve built up over the last decade and they can afford to weather a couple of years, two, three, maybe four years of quite low oil prices before they start to see budget ary problems. In the long term it may make russia more assertive. It may mean that the regime in the kremlin is more worried about markets, about finding people to buy their oil than they are about other issues like ukraine, but in the short term i dont think it helps the u. S. And its allies too much. There are big producers who are still quite poor like angola and nigeria whose National Treasuries depend heavily on oil revenue. What are they looking at in years out. Nigeria has a sweet crude that has stood them in good stead, but still they need to sell a lot of it to keep the economy on even keel. They do, indeed. Nigeria, i think s extremely vulnerable, angolas production is going up. Keep in mind at 150,000barrels of oil in nigeria disappears in financial coffers of various individuals. Angola will certainly be hurt, but another group of countries that is interesting to note are the importers, japan has been hit hard importing fossil fuels in the wake of the Nuclear Tragedy of fukushima. This will also help importing countries l g. Liquified natural gas. Thats right. Excuse me, but newly emerging countries like australia, thats already a very highcost l g producer when it enters the market, theyre going to be hit hard, and some of these projects will be called into question, which in the long term may effect the volume of l and g in the market. Are there best cases or worst cases we should be looking at over the next year or two . Goldman sachs with 70 a barrel all through next year. I said one of the things you never do on a show is name a price for oil. Its the hardest thing to predict. I would say lower. Lower than 70 . Yes. With all the accompanying bad possibilities that that would bring . Thats true. A country like iran is sunk either way because of all the issues weve been mentioning here. But russia is a tricky case. You know, he hasputin has enough reserves, again, to weather him through the storm, butbut he does not have that much. Hes not like saudi arabia that can survive at lower ends. Thank you all for being with us today. That brings us to the end of this edition of inside story. Thanks for being with us. Get off that gas pedal a little bit. In washington, im ray suarez. Joining the fight against isil. The first peshmerga fighters head to the besieged syrian town of kobani. Hello, im Martine Dennis in doha. Also to come on the program, enforced migration, egypt displaces thousands to create a large buffer zone along the border with gaza. Bangladesh war crime charges, the leader of the Largest Party is sentenced to