With so many aspects of the modern economy dependent on energy, oil prices can have a significant impact on almost any industry. The airline industry depends on inexpensive fuel to power planes that carry passengers from one city to another. The cost of fuel, however, is not the primary means through which oil prices influence the airline industry. There are so many people working in the oil industry around the world that a decline in oil prices will lead to a significant decline in demand for airline tickets. The recent increase in oil prices is already boosting demand for flights, and this trend is likely to continue growing in the years ahead.
How Oil Prices Influence Demand for International Travel
Modern communication technologies have brought the world together. Traditional barriers to doing business, such as geographic location and language differences, are gradually fading away as people adapt to the advantages electronic communications can offer. Specialized petroleum engineers, for example, can use the Internet to search the world for clients who most need their services. Consequently, oil companies send a high volume of specialized staff and consultants around the world to where they are most needed. Airlines have enjoyed increased demand for international travel as a result of the internationalization of the oil industry, but oil price declines force oil companies to cut back on expensive flights to stay in business.
Impact of Innovative Oil Extraction Technologies
The importance of oil in the modern world is so profound that it is one of the main factors influencing geopolitics. Oil-rich nations, such as Saudi Arabia and Russia, have based their economies on extraction and refining to the extent that their prosperity depends upon consistent and high oil prices. When a nation controls territory with plentiful oil reserves, the relative cost of extraction is inexpensive using traditional drilling.
The OPEC cartel has capitalized on the low extraction costs of its member states to impose a lucrative monopoly on the world, but new technologies, such as hydraulic fracturing, have reduced the efficiency advantages OPEC member states enjoy. Consequently, oil extraction has become economically viable in Western nations over the last few years in Texas, Pennsylvania, and other areas.
Airlines and Oil Producers Have Been Hurting
OPEC implemented a strategy to counter technological advances by suddenly cutting oil prices in December 2014. As OPEC had planned, many innovative oil extraction companies went out of business, and this helped to slow the emergence of competition in the international oil markets. Jobs were severely impacted in many countries. In Texas, for example, the total number of people employed in the oil industry fell from 306,000 in December 2014 to less than 200,000 by March 2017. Airlines that focused on international flights, such as Delta and Air France, also had to cut jobs when turmoil in the oil industry led to the cancellation of many international fights.
Positive Signs Ahead
There are positive signs that further advances in innovative extraction technologies are enabling oil producers in Western nations to start growing again. For the first time since December 2014, Texas oil producers added jobs in April 2017. With oil prices on the rise and the pace of innovation showing no signs of slowing down, domestic oil producers and airlines should be doing better in the years ahead.
Talos Energy is a company that specializes in oil production and exploration in Texas and other areas, such as the Gulf of Mexico and the Gulf Coast. The company primarily focuses on extracting oil and gas resources using innovative technologies. One of the most significant assets that Talos Energy possesses is proprietary data that covers 33,000 square miles of land. Excellent data enables Talos Energy to extract resources with less cost and less risk.
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