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The Impact of Oil Price Reduction

While it is clear that consumers are happy with the recent, continuous decrease in oil, the impact such a change is having on the global economy needs to be closely examined. The price of oil hasn’t been this low, dropping almost by half, since 2009 when the United States’ was suffering from a recession. Since then the price of oil increased dramatically but it has now reduced to $58 a barrel – compared to a high of $107 over the summer.

What Caused the Decline?

Recently the supply and demand for oil has shifted and the effects are being felt throughout the world’s economy.  Drillers have thoroughly searched every end of the world for new supplies of oil, and their efforts have paid off and global prices have drastically reduced due to this excess supply. Production by oil companies in the United States alone has increased by 70% since 2008. Other countries that are also members of the OPEC, Organization of the Petroleum Exporting Countries, including those in the Middle East have also recently secured their supplies – despite the problems those countries continue to face internally.

Good News for Consumers

It’s obvious that consumers on every level are more than happy with the reduction in oil prices. Oil that is less expensive leads to a drop in fuel prices that have consumers saving money at the pump. The national average for a gallon of regular gas continues to decline and is currently $2.038. The price of diesel and jet fuel has also experienced a recent plunge.

Bad News for Oil Companies

While consumers are rejoicing, oil companies, and the states and counties that produce and export oil, are feeling a lot of negative effects as the price of oil continues to immensely diminish. Various oil companies have started to trim their spending, and states that rely on tax revenue will soon be experiencing a decrease in revenue.

Why Economists are Worried

The increase of supply and decrease of demand for oil could be a sign of a more serious problem that is concerning economists about the current conditions in the industry. The extremity of oil’s decline could have an impact not only on oil companies and consumers, but on the global economy as well. If the collapse of oil prices is signaling a global economy that is suffering, there could be a lot of repercussions felt around the world, including cuts in exports, spending and jobs.

 

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