The Low Price Of Oil

Currently Saudi Arabia is one of the leading producers of oil in the world. However, it is losing its foothold on the market. Many countries, like North America, are increasing their oil production and are looking for ways to become less dependent on foreign oil. The increased competition has caused oil prices to decrease. By producing their own oil, countries not only will increase their revenues, but will also reduce their need to rely on foreign oil. By reducing their need foreign an oil a country does not have to worry that their oil supply will be cut off if they go to war.

In the recent news headlines, the oil crisis and the plummeting gas prices have caused a concern among many. The topic of the oil industry and gas prices are such a controversial matter that has been debated for years on what should be done. On a positive note if gas prices continue to drop, those that do not work in the oil industry will be pleased with this result. With the gas prices dropping to a significant low in the past couple of years, President Obama feels as though he needs to improve this situation.

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 a revealing article by George Perry (2001) the author discusses the economic impact that a disruption in the oil supplies would have on world oil prices. He states “Currently 28 percent of the world's crude oil comes from the Organization of Arab Petroleum Exporting Countries (OAPEC) consisting of Arab Muslim nations, some of which are not part of the OPEC cartel. The governing regimes in all these countries are at some risk [due to the war on terrorism].” He goes on to state that in a worst case scenario the economic consequences of oil supply disruption would be “oil prices rise to $161 per barrel driving gasoline price to $4.84 per gallon. The increase in the nation's bill for products of crude oil rises by about 10 percent of GDP, which adds perhaps 15 percent to the inflation rate in the first year. And the recession is the steepest and deepest of the postwar period, with GDP declining nearly 5 percent the first year.”

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

This report will consist of the causes and consequences of the changing price of WTI crude oil and recent trends in the global price of oil. It will also include the effects of the ever-changing price of oil on individuals, business firms, governments and the economy.

Within the last year, oil prices in the United States have dropped significantly. As oil drilling in the United States has reached its highest level in over 30 years, consumers are reaping the benefits. Among these gains are record-low prices at the pump, and cheaper oil to heat homes. However, oil prices did not just drop on their own; multiple factors contributed to the fall. Increased domestic production, declining global demand, and competition from other oil-producing nations had led to rapidly dropping oil prices across the United States.

Since the U.S. is such a prominent oil buyer from--as Corey Flintoff (2012) informs--countries such as Canada, Africa, Latin America, and others, a sudden cease of demand would rock the world’s economy. As of now, the U.S.’ demand of oil is at an equilibrium with the oil being supplied. If the U.S.’ demand of oil dropped dramatically, as Pickens Plan says it should, oil supplying countries would scramble to compensate for lost profits. In theory with the supply-and-demand model, the cost and supply of oil would skyrocket, while demand would be nonexistent. Since oil would be so costly, countries that purchase oil would be unable to afford it anymore, resulting in an even higher increase of prices and steeper decrease of consumers. With the loss of the U.S. as a consumer, the economies of these countries would suffer; this suffering would then spread worldwide, affecting everyone

The total economic profits of the fall in oil prices are substantial. It could slightly make GDP growth in the United States go up as well. The GDP is one of the economic indicators. Also, it is not that deflation of oil prices are bad as low gas prices are good for the consumers. However, it is what oil prices may be signaling, and what they might be possibly signaling is the reduction of demand, leading to

According to current estimates, more than 80% of the world's proven oil reserves are located in OPEC Member Countries, with the bulk of OPEC oil reserves in the Middle East, amounting to around 66% of the OPEC total (OPEC Share of World Crude Oil Reserves, 2014). Competition amongst the U.S. and the Middle East has never reached this level before. There is a constant tension between the two countries and refuse to collaborate in dividing the market share equally. Furthermore, as both nations refuse any bipartisan agreement, there is no limiting the production of oil. Each nation is looking to drive out competition by any means. What they don’t realize is if they cooperated and reached an agreement amongst the international community, oil will remain profitable just as it was a few years ago. Though, this is unlikely to happen any time soon, but will eventually cause Saudi Arabia and other Middle Eastern countries to take a drastic decision when their main source of capital plummets due to the current price of oil. Profits are no longer seen in the oil industry. The Price of oil has been selling at around $50-$60 per barrel, not enough to cover production cost. The United States is able to withstand any contraction within the oil sector, as their financial portfolio is diversified, not solely reliant on the price of

Saudi Arabia is in possession of vast quantities of crude oil, currently larger than the US. [2] Due to the ease of access for Saudi Arabia to extract their oil, they have much lower production costs, giving them the flexibility to sell their oil at much lower prices. [3] This has forced many international oil companies to match these low prices to stay competitive. As other companies are not able to produce oil at such low prices they are forced into smaller profits, making extraction more costly. [4]

Harold Hotelling theorised that since oil is an exhaustible resource that once burnt cannot be reused, the price of oil should exceed the marginal cost even in a perfectly competitive market. This is a result of unavoidable geographical limits, if we assume the short-run demand price elasticity of -0.10 and we know that next year oil production will be 90%, this means that the price tomorrow will be double todays price. In this example it would make sense for the producer to ‘store’ the oil in the ground waiting to sell it for a greater amount next year. Therefore in a competitive equilibrium, the owner should receive compensation in exchange for producing the oil today, this compensation is the scarcity rent and should leave the producer

Harold Hotelling theorised in 1931 that since oil is an exhaustible resource that once burnt cannot be reused, the price of oil should exceed the marginal cost even in a perfectly competitive market. This is a result of unavoidable geographical limits, if we assume the short-run demand price elasticity of -0.10 and we know that next year oil production will be 90%, this means that the price will be double what it is today. In this example it would make sense for the producer to ‘store’ the oil in the ground waiting to sell it for a greater amount next year. There in a competitive equilibrium, the owner should receive compensation in exchange for producing the oil today, this compensation is the scarcity rent and should leave the producer indifferent between producing today and in the future.