The key to our economy could truly be inside our gas tanks.
This article discusses how the forecast of the nation’s gas prices will be
roughly around $3 per gallon by the end of the year while experts predict $3.15
per gallon by Halloween. This time last year, gas prices averaged at $3.44 per
gallon. People may not think much of this towards our economy yet for each cent
lowered on gas prices actually adds $1 billion in cash flow to our economy to
be spent somewhere else. Compared to last year, we've already added $29 billion
to the economy. Experts say if gas prices decrease by 40 cents and ends up
staying at that rate, then that is worth three- to four-tenths of a point on
GDP. A problem the U.S. is having is involved with the collapse of corn
ultimately dropping the prices below $3.40. Corn-based ethanol was trading around
$1.80 proving to be at a multi-year low. This is calculated to be sixty to
eighty cents under gasoline. Moreover,
the outlook for oil is negatively trending bringing gasoline prices below $3
per gallon. As a fair warning, economists are already calculating the impact of
lower gasoline prices through consumption and overall inflation. Economists Michael
Gapen emphasizes these concerns produce harsher, further concerns pertaining to
global growth. Agencies have already dropped their 2014-2015 world oil demand
in its monthly report. The demand for barrels has decreased by 65,000 barrels a
day which paints a negative picture for the future of oil. This week, U.S.
refineries are at 93.5% capacity but once this summer’s driving season ends,
refineries are projected to lose one million barrels a day. This is a very
sensitive issue as the reduction of one million oil barrels will set capacity maintenance
offline. Overall, it is interesting to see how the economy reacts to these
stated problems. These problems raise questions pertaining to how the economy
will react due to the transformation of the current world we live in compared
to one with significantly less oil.
Source: http://www.cnbc.com/id/101992936
I am surprised by how impactful the price of gasoline can be on our overall GDP and consumption. When at the pump, we rarely consider the difference a penny or two can have but clearly it matters on the national level. However, I wonder if the positive effect this phenomenon has on GDP and consumption will outweigh the under-capacity of the oil agencies.
ReplyDeleteIt makes sense that oil prices would have such a large effect on the overall GDP because it is a product that almost everybody uses. I wonder if the negative trend for demand of oil will continue into next year. What does this mean for the future of oil and other sources of energy. The decline of oil may lead to the rise of other types of energy and what that will mean for our economy will be interesting to see.
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