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​The downsides of cheap oil

For people in the petroleum business, it's a slippery slope: The plunge in oil prices that's a boon for most of us is a calamity for others. And it's not just producers overseas taking the hit. Our Cover Story is reported now by Martha Teichner:

Hallelujah! Gas under $2 a gallon ... under $1.50 ... "I'm thrilled," said one motorist.

Last year, falling pump prices put an extra $115 billion in Americans' pockets.

The price of oil has dipped below $30 a barrel.

It's all good, right? One big boost to the economy? Well, not so fast. It's also a symbol of a crash. In West Texas, $30-a-barrel oil means a deepening economic disaster.

To oil field consultant Mike Rasco, a drilling contractor's parking lot filled with unused drilling rigs symbolizes the American oil and gas industry going broke. In just the last year, more than 900 rigs were idled. The U.S. total, down 60 percent.

Each rig represents lots of people out of work, Rasco said. "Your basic crews for the rig itself, you've got 20 people without a job."

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A global glut of oil has shut down wells across West Texas.
CBS News

On the road between Midland and Odessa, it's all there to see -- the collateral damage caused by low-price oil. The auction lots for heavy equipment no longer needed, for the repossessed cars and trucks of the people who've lost their jobs, the pumpjacks that aren't pumping.

"A gallon of water off the store shelf [costs] more than a gallon of oil," said Rasco. "It's just getting worse."

Until he was laid off last spring, Rasco made $1,700-$1,800 a day overseeing projects for a major oil company. Worldwide, the oil and gas industry has cut more than 275,000 jobs since oil prices peaked at over $100 a barrel in mid-2014. Why?

For starters, demand for oil fell. In the past, OPEC has cut production in response. Not this time.

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Simon & Schuster

"Before the oil price collapse, the assumption was that OPEC would underpin the oil price by cutting production," said Daniel Yergin, vice chairman of IHS, an international information company, and the Pulitzer Prize-winning author of "The Prize" (Simon & Schuster, A CBS-owned company), a history of oil. "But the key oil producers in the Gulf -- Saudi Arabia and the other Gulf states -- said that 'We're not gonna cut unless other people cut.'

"Saudi Arabia's basic strategy is to maintain its market share in the global oil market and that's really been the starting point for them" -- and at the expense of everybody else.

So began a huge game of chicken, with Saudi Arabia and its OPEC partners pumping full-blast ... Russia, too.

And the United States? Fracking (pumping water into shale formations to free hard-to-get-at oil and gas) meant that the U.S. suddenly was producing a lot more oil, so much that for the first time in 40 years, we're exporting it.

"U.S. production went from 5 million barrels a day in 2008, to 9.7 million barrels a day in April of 2015," said Yergin. "In other words, U.S. oil production almost doubled in a matter of just a few years."

During the good years, Midland and Odessa, Texas, turned into boom towns. Same story in Williston, North Dakota. Based on $100-a-barrel oil, entrepreneurs borrowed billions of dollars to buy into the bonanza. Workers flocked to the oil patch -- so many they had to live in trailer camps, on cots in church halls.

"I heard about all this big money, so I thought I could get a little piece of that pie, I suppose," one worker had told CBS News.

Then the price crashed, thanks in large part to China's slowing economy. The Saudis and their Gulf state neighbors, with their deep pockets and low-cost oil production, kept pumping, and settled in to wait for their competitors to flinch.