Gas Prices could drop below $2 a gallon by Christmas, the last time that happened was in 2004. And the cost of gas has steadily been dropping since June 2014. The Number one factor is soft oil prices, one reason being that back in October Saudi Arabia attempted to cut crude prices in order to drive costlier companies in the U.S. out of business. Another reason being that there is a reduced demand for oil in China, who had passed the U.S. in imports for oil but their has been a gradual economic decline.
It's great for consumers, not so much for drillers and gas companies
Article 1:
https://www.mainstreet.com/article/gasoline-prices-to-tick-downwards-as-oil-glut-remainsArticle 2:
http://wypr.org/post/oil-prices-tumble-again-hurting-drillers-helping-drivers
6 comments:
These low oil price will be an interesting factor for monetary police. Since oil is so foundational to the economy, oil prices often have great impact on inflation. These low prices should keep inflation low which might mean that the Fed would need to amplify its activities to achieve an inflationary target rate.
I agree with Tyler but to some extent I believe that they should calculate inflation accounting for the change in oil prices. Some may be concerned that we could have deflation but in actuality this is not necessarily a bad thing as only the oil industry is truly effected by the prices while businesses that only use oil for shipping will be able to pass savings on to consumers and encourage more economic activity.
I would like to see how all of OPEC reacts to this low oil prices in the United States. Saudi Arabia along with other Gulf countries, such as Kuwait and the UAE, can surely lower their own prices in the hope of driving some of the smaller US oil companies out of the market, since these 'richer' OPEC members already have a lot of foreign currency reserves, and so can run into deficits for many years. . However, other OPEC members, such as Nigeria, Iran, and Iraq cannot really lower their own oil prices a whole lot because of their own budgetary needs in relation to their oil revenues. So it will be interesting to see how they react in this time of greater competition from the US companies.
I don't think these prices are going to last. I payed $1.99 per gallon yesterday, today prices are up to $2.26 per gallon. I think that OPEC countries are over producing at the moment so prices per gallon of gas have dropped across the market. Something similar happened a few months ago as well. Gas companies need to stabilize there production process so that there isn't vast fluctuations in gas prices. Something I'm sure the countries of OPEC should be able to do.
I agree with Maggie, I do not think that oil prices will last at their current prices and will rise sometime in the future due to unseen economic factors like an increase in cost of production for Saudi Arabia. But, at the same time I feel that this inclination to drive costlier companies in the U.S. out of business to drive down the cost of crude oil is what we should be focusing on. This will cause an upset in the U.S. economy that could be detrimental. So, yes, while cheaper gasoline is always a plus for the consumer, I think we should consider what this will mean for the American economy as a whole.
I think some great points were brought up following Montana's initial comment. I agree with Tyler on the point of how the low oil prices are impacting both monetary policy but also international trade. Take for example Russia who is cutting oil prices in order to keep interest rates around 11% amidst a weak ruble. Out of fear of inflation, Russia cut oil prices as they try to stabilize the economy. This tactic can in fact point to economic concerns for an oil rich nation. With these concerns in mind, I also agree with Matt who pointed out the positive impacts of the falling prices. Pointing out that the lower prices stimulate trade and spending as they act as an incentive.
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