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Recently, oil prices have costed less than they have in the past four years. Although this may seem like a good thing for consumers, it could damage the economy in the long run. Normally, a drop in oil prices is usually because of a weaker global economy, or the currency getting stronger. Both of these factors could hurt the economy by causing unemployment, less spending and reduced exports. These consequences could outweigh the benefits of cheaper oil.
The U.S. has seen a boom oil production since drilling started in places such as North Dakota and Texas, and if the prices continue to lower, production would have to slow down in order to keep profit. If this happened, there would be less supply, and more demand due to low prices.
Furthermore, because oil is priced in dollars, if the dollar gets stronger, it makes oil more expensive and demand is reduced. Instead of prices being low, they will be too high in the future.In this case, there would be an abundance of supply, but not enough demand.If the dollar gets stronger, U.S. goods will be more expensive, and a reduction in exports and a rise in imports will be seen, this can negatively impact economic activity and halt job growth.
Though lower oil prices may seem like a benefit, it can damage the economy in the future.
As long as the oil prices do not stay low for too long, the benefits of lower oil prices for consumers and businesses should boost the economy rather than hurt it. We will have to wait and see how long prices remain low, but it seems that many of the analysts in this article are simply pointing out the hypothetical and expect supply and demand to balance out relatively soon.
ReplyDeleteI personally feel the low oil price is a great boost for the US economy. For instance, companies that rely heavily on oil for manufacturing and performing other process can possibly increase their overall productivity due to a lower raw material cost. This would eventually help US economy in the long run if all companies of such kind work collaboratively to run more efficiently with higher productivity. In addition, in my opinion, although US normally imports a lot of oil from oil-rich countries, a boom in the supply of the oil in the US may lead to lower imports and perhaps excess oil can be exported to countries requiring more oil, thus increasing net exports and helping to reduce the trade deficit.
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