OPEC is continuing to produce large quantities of oil,
despite dropping oil prices, to gain global market share. They are doing this
to make U.S shale oil producers cut back on production. The booming shale oil
industry in the U.S has taken away from OPEC’s market share and also dropped
oil prices because of the increased supply. If prices continue to drop, U.S firms
will be forced to lay off workers or cut costs in other areas. U.S firms have
cut dividends to make sure they don’t have to fire workers. The break-even
point that would cause employee layoffs would be around $55 a barrel. Luckily
oil prices are at $70, so this wont become an issue till down the road.
This is directly related to the article that i wrote about. OPEC is the major reason why gas prices have been so attractive. It is a shame that some employees will lose their jobs, increasing the employment, but these low gas prices are giving Americans confidence in their economy for the first time in 8 years.
ReplyDeleteLow prices are a very big plus for US citizens and their confidence in the economy. OEPEC's role in lower gas prices has been very significant,however; the loss of the jobs is a major downside which is increasing unemployment.
ReplyDeleteThe low prices not only give Americans confidence in their economy, but allow Americans to spend the money they save on gas elsewhere.
ReplyDeleteRight now there is not a large effect on jobs because oil has not reached the break even point yet, so currently we are enjoying this. It will be interesting to see what happens as the price of oil per barrel reaches the break even point.
ReplyDeleteIf gas prices stay low or decrease even further it will get harder for the Fed to meet their target inflation rate of 2%. A sustained decrease in gas prices would theoretically have a reduced effect on the overall price level.
ReplyDeleteI have read elsewhere that this drop in oil prices could be a U.S./OPEC joint strategy to hurt Russia. Apparently Russia planned on oil prices to be around $100/barrel in their 2015 spending budget and they are actually around $70 now. Russia makes a lot of their revenues on oil (45%) and with the dropping prices, they will have to cut their government spending by a lot. It looks like President Obama is succeeding in his plan to hurt Russia economically when they began their Ukraine offensive earlier this year.
ReplyDeletehttp://www.vox.com/2014/11/28/7302827/oil-prices-opec