http://www.usatoday.com/story/money/markets/2014/11/27/opec-vienna-meeting/19570473/
Oil prices have been declining rapidly since June, falling about 40%. Crude oil prices have dropped to $69.11 per barrel in London, down from $115 per barrel in June of this year. The drops have led to the lowest oil prices since September 2010, which has been attributed to a number of different factors.
Oversupply, decreased demand, and an increase in North American crude production have all contributed to the drop in oil prices. One fact that I found very alarming was that OPEC countries have exceeded their "output target of 30 million barrels a day by about 600,000 barrels a day for the past six months." It is obvious that when combining all of these factors, the price of crude has dropped significantly which caused OPEC to meet and discuss what to do regarding the problem.
In the United States, this can be considered a favorable supply shock as it was in the 1980s. When looking back at the 1980s oil shock, we also observed a decrease in unemployment and inflation as well. Because of this, I believe unemployment will continue to decrease, at least for the next few months until the oil market settles or recovers.
It is interesting how we can look at historical shocks similar to the one we are experiencing now so we know what to expect. Hopefully we can reap the benefits of the lower unemployment and inflation for a little while before OPEC starts to cut back on production in order to increase demand so the price levels can return to where they should be. Personally, I can appreciate the surplus as I recently filled my tank for $2.69/gallon. I can definitely see how this can affect the entire country's economy as I'm sure millions of people filled their tanks for good prices recently.
ReplyDeleteI believe that as opec and other oil industries increasing their output will continue for more than a couple of months. Because of this, I also believe unemployment will continue to fall. I will be interested to see what OPEC will do with their oil production in the future.
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