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PAGE ONE Economics®
the back story on front page economics




Falling Oil Prices
Create Winners and Losers
Scott A. Wolla, Senior Economic Education Specialist


When you see [an oil] rig like that sitting in the yard, that just
means that there’s no longer demand to keep it in the field, and
there’s just not enough work out there for you.
—Danny Morgan, Morgan Well Service1


il is important to the economic development of the United States:
It powers much of the U.S. economy, and its price fluctuations
can influence inflation2 and unemployment. However, the impact
of oil prices is often felt more directly (both positively and negatively)
by local economies with close ties to the oil industry.3 For example, the
recent decrease in oil prices has resulted in an estimated 75,000 worker
layoffs in the oil industry, and more are expected.4 As such, it might seem
that falling oil prices are harmful to the economy, but most economists
believe the recent decline in oil prices will promote economic expansion.5


Regional Expansion During a National Recession
The recent oil industry boom was largely due to the emergence of
two new oil drilling technologies—horizontal drilling and hydraulic fracturing (or “fracking”)—and high oil prices. This boom started during
the Great Recession, amid high national unemployment (10 percent in
October 2009), and was felt most dramatically in western North Dakota,
where employers had difficulty finding enough workers to fill the many
jobs created by the boom.
Distance and the housing crisis restricted the flow of job seekers to
the job opportunities in North Dakota. North Dakota is relatively isolated
from large population centers; Minneapolis-St. Paul, the nearest large
metropolitan area, is over 500 miles from the Bakken Formation.6 Further,
the states that had very high unemployment rates during the recession
(the most job seekers)—Arizona, California, Florida, and Nevada—are
all well over 1,000 miles away. The housing crisis made it difficult for
many job seekers to move to find employment because plunging housing prices left many homeowners “underwater”—that is, owing more
on their home loans than they could recoup by selling the house. As a
result, they were financially tied to their current location.

Relative scarcity—Demand for a resource,
good, or service relative to the available
supply of that resource, good, or service.

PAGE ONE Economics®

Federal Reserve Bank of St. Louis


Resources and Employment in Boom
The boom in North Dakota that produced vast quantities of one valuable
resource (oil) left employers searching
for another valuable resource: labor. The
demand for labor is derived from—or determined by—the demand for the goods and
services that the labor produces. That is,
the demand for oil drilling services determines the demand for workers in the oil
services industry. The combination of new
oil drilling technology and high oil prices
provided oil companies with an incentive
to drill new wells. Explorations ramped up
in 2006 with the discovery of the Parshall
oil field,7 which led to growing interest in
the larger Bakken Formation. Oil production
in North Dakota grew at least 12-fold from
January 2006 (99,000 barrels per day) to
December 2014 (1,227,000 barrels per
day).8 The relative scarcity—that is, the
demand for a resource relative to the available supply—of workers in western North
Dakota set the stage for regional labor
shortages and higher wages.

NOTE: The U.S. unemployment rate rose to 10 percent during the 2007-09 recession (blue
line) and has since decreased to 5.5 percent. Meanwhile, the North Dakota unemployment rate
peaked at 4.3 percent during the recession and decreased to a low of 2.7 percent (April
2014). The gray bar indicates the 2007-09 recession as determined by the National Bureau of
Economic Research.
SOURCE: FRED®, Federal Reserve Economic Data. Federal Reserve Bank of St. Louis: US. Bureau
of Labor Statistics, Civilian Unemployment Rate [UNRATE], Unemployment Rate in North Dakota
[NDUR].; accessed March 31, 2015.

2009 October Unemployment Rate by County

NOTE: North Dakota experienced a lower-than-average unemployment rate during the 2007-09 recession. This GeoFRED®
map shows the unemployment rate by county in October 2009.
SOURCE: Federal Reserve Bank of St. Louis. “Editing the Legend and Changing Colors by Mapping an Oil Boom.”, p. 8; accessed March 12, 2015.

PAGE ONE Economics®
The impact was most dramatic in Mountrail and
Williams counties in North Dakota. While the national
unemployment rate rose to 10 percent, the unemployment rate in Mountrail County fell to 3.3 percent in
October 2009 and continued to fall—all the way to
1.1 percent in October 2014.9 In neighboring Williams
County, the unemployment rate dropped below 1 percent.10 Over time, workers moved to the area—the
population in Mountrail County increased 47 percent
in seven years—from 6,376 in 2006 to 9,376 in
2013.11 As might be expected, incomes boomed
along with the oil industry: Per capita income more
than tripled, from $26,219 in 2006 to $90,614 in
2013.12 In Williams County, per capita income peaked
at $121,459 in 2012.13

The Economic Impact of Falling Oil Prices
High oil prices sustained the boom for a while, but
the recent decline in oil prices has deflated the local
economy. On July 28, 2014, prices reached $105.68
per barrel, and by January 28, 2015, they had fallen to
$44.08 per barrel, a 62 percent price decrease in only
six months.14 While most operating wells continue to
produce, the dramatic decrease in oil prices has greatly
reduced new drilling. Oil rigs that were used 24 hours
a day for months at a time are now idle, as are the
workers who operated them. In April 2015, North
Dakota reported 94 active oil rigs, down from 217 in
the spring of 2012.15 This change has important implications for the state’s economy; reports estimate that
each operating rig supports 120 full-time jobs.16

Federal Reserve Bank of St. Louis


Clearly, falling oil prices hurt oil companies and
workers in oil services industries. But they do benefit
the general economy. Money that consumers and businesses might have normally spent on fuel for heating
and transportation can now be spent on other goods
and services (or saved). For example, the U.S. Energy
Information Administration estimates that U.S. households will spend (on average) about $750 less on gasoline in 2015 compared with 2014.17 This increase in
consumer disposable income can spur consumer
demand for other goods and services. On net, these
economic gains that arise from increased consumer
spending tend to outweigh the effects of a reduction
in oil drilling activity. In addition, lower oil prices are
associated with factors such as lower overall inflation
and lower (nominal) interest rates, which might increase
demand for consumer spending on automobiles and
housing and business investment on capital goods.18

Fluctuations in oil prices can produce booms and
busts in rural areas that result in fluctuations in the
demand for labor. North Dakota is a case in point: Rising oil prices resulted in a flurry of drilling and the hiring
of oil field workers, and the recent collapse of oil prices
has seen a parallel decrease in drilling and employment.
Oil prices also have implications for the larger economy.
Although falling oil prices hurt some local economies,
they are a net positive for the economy.19 ■

PAGE ONE Economics®
1 Morris, Frank. “Analysts Fear a Prolonged Drop in Oil Prices Will Hurt
Oklahoma’s Banks.” KCUR National Public Radio, Kansas City, MO,
February 24, 2015;

Federal Reserve Bank of St. Louis



FRED®. “Unemployment Rate in Williams County, ND [NDWILL5URN].”; accessed March 31,


FRED®. “Resident Population in Mountrail County, ND
accessed March 31, 2015.


Kliesen, Kevin L. “Are Oil Price Declines Good for the Economy?” Federal
Reserve Bank of St. Louis Economic Synopses, No. 3, February 6, 2015;


3 Federal Reserve Bank of St. Louis. “Plunging Oil Prices: Impact on U.S.
and State Economies. Part 4: Regional Effects of Lower Oil Prices.”
Dialogue with the Fed, presented February 12, 2015;


FRED®. “Per Capita Personal Income in Mountrail County, ND
[PCPI38061].”; accessed
March 31, 2015.
FRED®. “Per Capita Personal Income in Mountrail and Williams
Counties, ND [PCPI38061, PCPI38105].”; accessed March 31,


Helman, Christopher. “Itemizing the Oil Bust: 75,000 Layoffs and
Counting.” Forbes (blog), March 16, 2015, updated March 18, 2015;

IGM Forum. “Oil Prices.” January 13, 2015;

FRED®. “Crude Oil Prices: West Texas Intermediate (WTI)—Cushing,
Oklahoma [DCOILWTICO].”; accessed March 31,

15 North Dakota Industrial Commission, Department of Mineral Resources.
“Current Active Drilling Rig List.”;
accessed April 3, 2015.


The Bakken Formation covers 200,000 square miles and underlies parts
of Montana, North Dakota, Saskatchewan, and Manitoba. Oil was first
discovered there in 1951, but the technology to extract it was introduced
only recently.
7 The Parshall oil field, near the town of Parshall, North Dakota, draws
from the Bakken Formation. The discovery of the Parshall oil field in 2006
is often marked as the start of the North Dakota oil boom.

North Dakota Industrial Commission, Department of Mineral Resources.
“ND Monthly Oil Production Statistics.”

Kovacevich, Terry. “North Dakota Petroleum Council.”

17 ”Statement of Adam Sieminski before the Committee on Energy and
Commerce, U.S. House of Representatives, March 3, 2015;

See note 2.


See note 2.


Federal Reserve Economic Database (FRED®). “Unemployment Rate in
Mountrail County, ND [NDMOUN1URN].”; accessed March 31,

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