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REPORT CRUDE OIL

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  • Running head: EFFECT OF FALLING CRUDE OIL PRICES 1

    Effect of Falling Prices in the Louisiana Crude Oil Industry

    By

    LAUREL LATTIMORE, MBA CANDIDATE

    A paper submitted in partial fulfillment of the requirements for the degree of

    Master of Business Administration

    INDIANA WESLEYAN UNIVERSITY

    June 2016

    I have read and understand the plagiarism policy as outlined in the syllabus and the sections in

    the Student Bulletin relating to the IWU Honesty/Cheating Policy. By affixing this statement to

    the title page of my paper, I certify that I have not cheated or plagiarized in the process of

    completing this assignment. If it is found that cheating and/or plagiarism did take place in the

    writing of this paper, I understand the possible consequences of the act/s, which could include

    expulsion from Indiana Wesleyan University.

  • EFFECT OF FALLING CRUDE OIL PRICES 2

    Table of Contents

    Executive Summary.3

    Research Purpose.....4

    The Problem.....4

    Research Objectives.....5

    Limitations...5

    Significance of the Study.6

    Significance to Researcher...7

    Significance to Oil Companies7

    Significance to Employees...8

    Broader Implications: Significance to U.S. Economy8

    Broader Implications: Significance to World Economy.8

    Industry Overview...9

    Characteristics10

    Identification and Discussion of Key Issues..11

    Key Issues..11

    Key Questions11

    Methodology..12

    Information & Literature Review..13

    Economic Review of Oil Prices.14

    Strategy and Policy of Louisianas Oil & Gas Market..16

    Ethics..18

    Human Resources..20

    Applied Management Theory21

    Accounting vs. Economic Implications of Labor..22

    Global Implication of Industry Threats.22

    Analysis of Key Issues..23

    Economics of Review of Oil Prices......23

    Strategy & Policy Review.24

    Ethics.26

    Recommendations & Conclusions28

    Conclusion.30

    References..32

    Figures35

  • EFFECT OF FALLING CRUDE OIL PRICES 3

    Executive Summary

    On 96.5 FM KPEL, Senator Ted Cruz stated, Pulling back the EPA regulatorswill

    bring back the oil and gas industry (NewsTalk, 2016). When asked what he would do as

    president to revive jobs in the oil and gas industry for Louisiana, Senator Cruz responded, And

    Ill tell you, when it comes to oil and gas, we are going to open up new federal lands and open up

    new federal waters so that we can develop the incredible resources we have. And we are going

    to stop the federal government from being a barrier to developing those resources (NewsTalk,

    2016).

    Oil and gas (referred to as oil, oil and gas, gasoline, or crude oil hereafter) workers in the

    state of Louisiana have lost jobs, in part because of the reduced price level of gasoline in the

    United States. This paper seeks to identify if jobs were lost and to understand how much of the

    unemployment in the oil and gas industry is attributable to the price of gasoline. In order to

    understand the effect of a reduction in the price level of gas, understanding how the price of gas

    is derived must first be understood. The research conducted will either prove that there is a

    correlation between oil prices and employment in the industry or this paper will conclude that

    there is no relationship between oil prices and the level of employment in the oil and gas

    industry.

    While exploring and uncovering this relationship, environmental factors will be

    discussed. The global implications and factors related to the price level of gasoline will be

    presented throughout this paper. Essentially, this paper will seek to identify a relationship

    though the process of elimination. Exploring other possible causes of a reduced gas price must

    also be taken into consideration to formulate an opinion about the effect of gas prices on

    employment in the oil and gas industry.

  • EFFECT OF FALLING CRUDE OIL PRICES 4

    Research Purpose

    The purpose of conducting this study is to understand the real effects of falling gas prices

    on an economy in the United States. The oil and gas sector represents a significant contribution

    to the economy of Louisiana. The health of the economy in Louisiana could be negatively

    impacted by a decrease in the price of oil. The purpose of this paper is to understand the factors

    that determine oil prices and the implications of a decrease in the price level of oil, particularly

    the negative impact on employment in the oil and gas industry.

    The Problem

    Fox8 Live news, WGNO (ABC affiliate), WWL-TV (CBS affiliate), and WDSU (nbc

    affiliate) have all purported that the drop in oil prices have caused a loss of jobs in the oil and gas

    industry for the Gulf-states region of the country. The Gulf-states are comprised of Florida,

    Alabama, Mississippi, Louisiana, and Texas. The media also portrays the idea that the fall in oil

    prices are good for consumers and good for the economy because consumers have more

    discretionary income. However, this extra discretionary income comes at a price: oil workers

    lose jobs. A study aimed at understanding consumers spending changes once the subjects knew

    a vehicle loan was going to be paid off in the near future concluded, The analysis presented in

    this paper shows a significant consumption response to the repayment of vehicle loans. The

    estimates imply that a 10% predictable increase in discretionary income corresponds to a 2% to

    3% increase in nondurable consumption (Stephens, 2008, p. 242). Economists hope that an

    increase in discretionary income will translate into economic stimulating effects.

    Local broadcasting stations for the New Orleans, Louisiana metropolitan area assume that

    workers in the oil and gas industry have lost jobs due to lower gas prices. This paper is designed

    to quantify the number of jobs lost and to understand the amount of money consumers are saving

  • EFFECT OF FALLING CRUDE OIL PRICES 5

    since the fall in oil prices began. Ethical implications must be explored to provide an

    understanding of which group is better off; consumers nationwide or unemployed oil and gas

    workers in Louisiana.

    Research Objectives

    In essence, this paper will uncover if the loss of jobs is justified by the economic

    stimulating effect experienced within Louisiana and nationwide. There are many accounts

    circulating about the depression of the oil industry caused, or at least purported to be caused by

    falling oil prices. This paper will analyze the depression of the oil and gas industry and seeks to

    understand the impact of falling gas prices on the economy and unemployment. To understand

    the relationship between the price of oil and unemployment in oil and gas, the factors that

    determine the price of crude oil will be examined. All of the research conducted throughout this

    study was conducted to see if a direct relationship exists.

    Limitations

    The time and resources required to study the entire country is not available, therefore, the

    focus of the study is limited to the state of Louisiana because the researcher lives in Louisiana,

    more specifically in Southeastern Louisiana. The perspective of this study may come from the

    viewpoint of Southeastern Louisiana residents, since many resources that will contribute to this

    paper have been collected in this region of the state. However, statistics offered by the various

    agencies and departments within and affiliated with the state of Louisianas government, will

    cover the entire state.

    Additional research should be conducted to understand the full economic effect of

    decreased gas prices on the entire U.S. economy. The oil and gas industry in other oil producing

    states could be examined. Research in this area would benefit organizations operating in the

  • EFFECT OF FALLING CRUDE OIL PRICES 6

    industry and the organizations that are indirectly affected by decreases in gas prices.

    Governments could benefit from research in this arena nationwide because they would be better

    able to understand the financial impact as workers rely on unemployment wages and government

    assistance.

    Furthermore, this study was designed to understand if there is a direct relationship

    between the fall in gas prices and a fall in employment in the industry but does not attempt to

    analyze the relationship between an increase in gas prices and the number of workers employed

    in the industry. One might assume such a relationship exists if the study proves a direct

    relationship for the opposite. Many factors were used to formulate an opinion about the

    relationship between falling gas prices and unemployment. These factors were analyzed

    carefully before coming to a conclusion. In order to formulate a conclusion about a rise in

    gasoline prices and employment in the oil and gas industry, extensive research would need to be

    conducted. The economic conditions and ethical implications of an increased price level for gas

    would have to be understood to formulate any opinion about whether or not a relationship exists.

    Significance of the Study

    The decrease in oil prices has many implications for organizations involved in the oil and

    gas industry. An exc

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