Oil Prices : Good Or Bad For The Economy?

Another cause for the decline in oil prices is caused by an increase in consumers purchasing more fuel efficient vehicles, such as hybrid or electric vehicles. In many countries today, especially in North America, there has been an increased demand for fuel efficient vehicles. This is evident in TV commercials which are advertising more and more vehicles that get 40 to 50 miles per gallon, and by the ever increasing commercials for electric vehicles. Consumers are tired of paying outrageous prices for oil and are demanding more for their money. As this demand continues to grow, the demand for oil will decrease.

The reason of the fall in oil prices are the constant change of demand. The need for the oil is actually stagnant. Crude oil is becoming a product of the past. Today, you can harvest energy from solar, wind, water, heat, and waves. According to The Economist, “The use of fossil fuels in the rich world is mostly falling. Emerging economies are not currently taking up the slack”.

The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)

High oil price for last few years drove the energy industry to come up with a new technological innovation and the result is a new drilling technique like hydraulic fracturing. This new technology made drilling easy in North Dakota and Texas (Timiraos, 2014). With more oil drilled domestically, U.S became net energy exporter instead of an importer. Also falling demand due to energy conservation, more efficient cars, less demand in China and OPEC opted against cutting production levels made the price go down. When Global economic growth was slowing and most economists agree that both supply and demand played role in the last year oil price plunge. Driven by the increased supply, oil price dropped from $82 to $50 between Oct'14 and Jan'15. The IMF summarizes 58% of the drop in oil price to supply and only 42% to demand.

The consensus from the 1970s and 1980s was that there was an inverse relationship between oil prices and real economic activities. This belief later changed when the oil price crash of the mid-1980s failed to boost economic growth. Researchers then believed that increasing oil prices negatively affect the economy whereas falling oil prices have very little impact and by the 1990s this impact was assumed to be minimal (DePratto, de Resende and Maier 2009). More recently, researchers have found that increases in the oil prices adversely affect the economy whereas the impact of a decline in oil prices on GDP growth is only negligible (Jimenez-Rodriguez and Sanchez

Economically, the oil industry will only pull us down as a country. Professionals believe that even though oil prices are falling, the production will start slowing and the prices will skyrocket again. The typical consumer would see that the price of oil barrels has fallen from one hundred to eighty dollars in the past year, but the consumer will not see the impact it will have outside of gas prices. Back in 2005, sixty percent of U.S. oil was imported, and the effects of a drop in prices would have been observed in the countries that we imported from. Today, however, only thirty percent of our oil is imported. With such a high amount of domestic oil, the low prices impacts the American

In January 2016, the cost of a gallon of gas dropped below two dollars, and consumers were rejoicing. Driving that car with twelve miles to the gallon car wasn’t so bad. Going to the grocery store was a little cheaper because of the transportation costs of goods. Americans could afford a like extra and never wonder about why the gas dropped. We were still hurting from three dollars or more for a gallon. Companies in the United States started drilling for oil on American soil in larger quantities than before two years earlier in 2014. Jobs in the industry were aplenty. Young adults straight out of high school could go into training for a year and come out making six figures by they were twenty-five. The amount of oil produced was

I’m convinced that the Oil Industry is being controlled by a group of crooks who like to yank our chain by imposing high prices on oil at every turn. Then when they have sucked and squeezed every cent out of us, all of a sudden the crooks will have a decreased of a few pennies reflected at the gas pumps.

Economic – External - Lower cost per barrel of oil allows for lower prices paid at the pump per gallon of gas. When oil prices drop so does the gas per gallon at the pump. When the prices of both oil and gas drop the need for oil drops as well. Therefore the need for oil workers drops which leads to layoffs (Yahoo 2015).

Gas prices have been decreasing in some states according to my research on google. Since there has been more oil found, we have more of a supply which means that the prices of gas will drop due to supply and demand. Now that we have more oil for gas, the supply has increased which means that even though demand is high, the prices are lower because we have that supply. It has been the lowest in years, dropping from about four dollars a gallon to about three and and a half. Even though this may seem like it isn’t important to the economy, it is because now more people can afford it so more money for the economy to make from its

Discuss how rising oil prices might affect the macroeconomic performance of an economy. (25 marks)

economy robust. According to the American petroleum institute (2013), the total employment impact of the US oil and natural gas industry’s on the national economy in 2011 was in the amounted to 9.8 million full-time and part-time jobs and accounted for 5.6 percent of total US employment. The above numbers include both operational and capital investment impacts (“Economic impacts,”2013). When the direct, indirect, and induced impacts were summed up, the industry’s total impact on labor income (including proprietors’ income) was $598 billion or 6.3 percent of national labor income in 2011. According to Analysts, the contribution of the industry to the US GDP was $1.2 trillion, accounting for 8.0 percent of the national total in 2011(“Economic

Along with having a large effect on the economy, the expansion of the oil industry would create an opportunity for employment for many citizens. According to a study conducted by Wood Mackenzie, opening these lands to drilling both onshore and offshore, would create approximately half of a million jobs (McClatchy). The new workers would receive a large salary and this in turn would boost the economy. In 2011, the average salary for rig workers and other industry personnel was $99,175 (Hargreaves). If half of a million employees earned the average wage, it would put $49,587,500,000 into the hands of the consumers on an annual basis. To achieve this vision, the government would need to lift its current restrictions on oil drilling in Arctic Wildlife Refuge in Alaska, the Florida Gulf Coast, and almost all

With the huge impact of the oil spill on marine life and coastal regions, fishing and tourism industries of the places affected in the Gulf Coast severely declined. In the fishing industry, the incident led to an approximate $2.5 billion loss, while tourist industries experienced a loss of a predicted $23 billion (Jarvis, 2010). In addition, the moratorium placed on deep water drilling left 58,000 workers unemployed (ibid).

Since the past few decades, owning a car has become a necessity in order to commute from one place to another. However, cars do not work automatically, they require fuel. Since the past decade, the petroleum industry has become one of the leading industries impacting the nation’s economy. Oil has become an essential commodity as it is utilized in transportation vehicles, serves as a raw material for manufacturing plastics, and is utilized in homes for cooking. America’s economy is greatly dependent on petroleum as it is the “black gold” of the nation. The considerable significance of oil has led to the drilling of it, which is not only limited to land, but also the oceans. Offshore drilling is a method in which petroleum is extracted from underneath the seabed. It is one of the significant technological advancements in the past few decades. However, the ones who are involved in the process of offshore oil production are humans, and humans tend to make mistakes. In 1969, due to a human error, an oil spill occurred and natural gas, oil, and mud shot up the well and oozed into the ocean (“Offshore Drilling”). The oil spilled led to an environmental disaster which killed thousands of marine animals and distorted the environment. In order to prevent the same error, the government passed a moratorium in 1981, banning more than 85 percent of the country’s oil drilling sites (“Offshore Drilling”). The moratorium restricted the United States to mass-produce its natural resource.