It has been a trend in U.S. history that when oil prices decrease, the economy grows. Vice versa, when oil prices increase, the U.S. economy typically suffers. However, in the past two years, while the price of oil has continued to fall, the economy has failed to experience the usual benefits that it receives from the decline. Economists believe that this is because "the losses from lower prices are larger and quicker than expected...while the gains are smaller and slower to materialize."
A part of the reason why the U.S. economy is suffering with the lower gas prices is because the U.S. has shifted from importing a majority of its oil to increasing its own production of oil and gas. In fact, the amount of imported oil and gas is at a low not seen since 1985 with only 27 percent of petroleum being imported in 2014. Thus, domestic oil and gas producers are suffering, offsetting the benefits experienced from increased consumption.
One issue with the decline of crude oil prices is that inflation expectations may not be met. The Federal Reserve aims to keep inflation at about 2 percent each year. The decreasing prices are causing most people to believe that the Fed will not meet the inflation goal in 2016 which is important because public expectations are important in the determination of the pace of inflation.
While many Americans benefit from the lower prices at the pump, it is important to consider the domestic oil and gas producers who are forced to lay workers off and the other consequences of a decline in crude oil prices.
http://www.nytimes.com/2016/01/22/business/energy-environment/this-time-cheaper-oil-does-little-for-the-us-economy.html?_r=0
http://www.nytimes.com/2016/01/22/business/energy-environment/this-time-cheaper-oil-does-little-for-the-us-economy.html?_r=0
I feel that that domestic production of oil is often overlooked by people who continue to get excited by lower and lower oil prices. The price of oil per barrel has recently dropped below $30, a historic low, especially shocking considering people were paying up to $4 for a gallon of gas just a few years ago. I agree that a large issue with these declines in prices is the affect on overall US inflation. Since the 2008 crisis, inflation is one of the remaining economic factors which has lagged behind in terms of returning to normal levels. The hope is that the raised interest rates by the US Fed will help somehow shock consumers and begin to spend in order to raise inflation. It has been very difficult to normalize inflation to its 2% target and right now declining oil prices are not helping.
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ReplyDeleteI agree that it is a concern that the lower prices of oil and gas lay off workers and that is a negative. But it is also beneficial for householders who are experiencing savings. But is it right that we are now supposed to count on declining prices of oil to increase our disposable income? The lower gas prices doesn't change the fact that fossil fuels wont last forever. A bigger concern is that we need to develop alternate sources of energy or all the advances that have been made will be worthless because we are still basing out advances on fossil fuel technology.
ReplyDeleteI found this article very useful, it is good news for American families to have a such low oil price,which may increase savings for them. While things can be discussed on both side, on a wider side,it is a big concern for U.S economy.
ReplyDeleteIt is definitely true that low prices at the pump are a welcome sight for some and a scary sight for others. US producers are calling the $30 price for oil "suffocating" for their production while the everyday person is certainly seeing benefit. Now that almost a third of US oil and gas companies are rated as a high risk for default, the future of US production is as unpredictable as the oil prices.
ReplyDeleteReduction in oil prices should increase people’s saving, which is good for the economy as a whole, but the economy did not experience those usual benefits; I think it’s probably because the decline in oil price is not significant enough to a average person in comparison with the cost of living. Oil price did drop by almost 2 dollars in the past two years, in the best circumstances, people might save 30 dollars a week, it is not so helpful to an average household. Ironically, it is good for businesses, because they didn’t change the price even though cost of production and transportation has gone down. And in this case they are experiencing a more significant benefit, as they use oil in a larger scale.
ReplyDeleteIn my opinion I think that the fall of the oil prices is a bad thing for the U.S because with the prices so low it is hurting the big companies but the one that are feeling this the most are the small family owned oil companies. I worked for a oil company over the summer and they were worried about how they were going to keep the doors open and that was when oil was around $75 a barrel, so if this keeps up there will be many small oil companies that will go under laying people off. another reason that dropping oil prices are bad is I just read how the oil prices and the stock market are kind of linked and by that I mean in the past when oil prices dropped so did the stock market. So overall the price of oil dropping is doing more harm to the economy then it is good.
ReplyDeleteSince US started to increase its own production of oil and gas, the price of oil and gas decreased. The profit of producers decreases because the consumption does not increase as fast as it is expected. I, however, believe that the effect of keeping decreasing the oil and gas price has a long term effect which would lead to the increase of purchasing cars and eventually increase the consumption of the oil and gas, which might cover the losses of reducing price. But there is one more thing needs to concern. Cars like Tesla does not use petrol as their fuels. Recently, this kind of cars is sharing the car market which would definitely reduce the use of petrol, leading the consumption of oil reduced too. I am kind of surprised because many people in China complain about the high price of oil, but I have never concerned that in US if the price of oil decreased, many workers would be forced to lay off.
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