Reasons For Falling Oil Prices

Over the past few years oil prices have been dropping. According to the U.S. Energy Information Administration (eig.gov), a barrel of oil cost $86.07 on October 20, 2013. As of October 20, 2015 a barrel of oil

The reason of the fall in oil prices are the constant change of demand. The need for the oil is actually stagnant. Crude oil is becoming a product of the past. Today, you can harvest energy from solar, wind, water, heat, and waves. According to The Economist, “The use of fossil fuels in the rich world is mostly falling. Emerging economies are not currently taking up the slack”.

This also improves the distribution of income, a reduction in the unemployment rate with result in households yet having more spending power and yet encouraging more economic growth. An increase in employment will result in an improvement in the budget deficit as there will be a decrease in the demand for welfare benefits, thus improving the economy. The increase in the supply of goods and services (due to an increase in demand) is also expected to reduce demand pull inflation, as there is now less competition for few goods, lowering the prices to a healthy equilibrium. This can be shown in a demand and supply diagram.

Whilst William McBride, chief economist for Tax Foundation website, sided with tax cut policy saying that to strengthen the financial state, “we should lower taxes on the earnings of capital,” “workers and the businesses that hire them,” Chye-ching Huang and Nathaniel Frentz, both are senior Tax Policy analysts, completely debunked the evidence McBride provided to support his argument, which includes the review of twenty-three among twenty-six studies he thought to advocate the idea. Indeed, as one conducts research, regardless of what sources it comes from, agreement over tax issue should never be found as a unanimous answer. One of the reasons why it is so difficult to reach a definite conclusion rests on the fact that although some statistics may show economic growth was in step with tax cut, correlation does not mean causation: just as ice-cream sale and murder rate increase during summer time, it is baseless to assume that higher ice-cream consumption leads to higher odds for crime. Moreover, because there is a great amount of research has been done on taxes, different interpretations from these data are understandable. Before concluding that “nearly every empirical study of taxes and economic growth published in a peer reviewed academic journal” finds cutting taxes improves the financial status quo, thus, people need to consider

High oil price for last few years drove the energy industry to come up with a new technological innovation and the result is a new drilling technique like hydraulic fracturing. This new technology made drilling easy in North Dakota and Texas (Timiraos, 2014). With more oil drilled domestically, U.S became net energy exporter instead of an importer. Also falling demand due to energy conservation, more efficient cars, less demand in China and OPEC opted against cutting production levels made the price go down. When Global economic growth was slowing and most economists agree that both supply and demand played role in the last year oil price plunge. Driven by the increased supply, oil price dropped from $82 to $50 between Oct'14 and Jan'15. The IMF summarizes 58% of the drop in oil price to supply and only 42% to demand.

The oil producing nations in the Mideast currently are meeting to discuss increasing production so that crude prices will decline from its current price of more than $30 a barrel to the region of $25 (Georgy, 2000).

Several oil-countries have been facing economic and political turbulence as a result of the crash in oil prices, and there is disagreement among OPEC as how to handle the situation. (Krauss) While this is happening, America’s oil production continues to rise, as it inches closer to becoming an energy superpower in production and consumption; and countries that depend on their oil exports face recession.

The consensus from the 1970s and 1980s was that there was an inverse relationship between oil prices and real economic activities. This belief later changed when the oil price crash of the mid-1980s failed to boost economic growth. Researchers then believed that increasing oil prices negatively affect the economy whereas falling oil prices have very little impact and by the 1990s this impact was assumed to be minimal (DePratto, de Resende and Maier 2009). More recently, researchers have found that increases in the oil prices adversely affect the economy whereas the impact of a decline in oil prices on GDP growth is only negligible (Jimenez-Rodriguez and Sanchez

Environmentalists were dismayed because cheap oil meant a continuing lack of economic incentives to develop or switch to alternative energy sources. Average regular gasoline prices at the pump fell in January to $1.06 per gallon, obliterating the effects of the small energy tax imposed by the federal government the previous October to encourage conservation.

Recently the price for the Canadian had drop drastically from. This was possibly due to the oil crash that occurred in Alberta. Due to the large supply of oil in the Middle East, the price of oil has dropped drastically, which meant that the price of oil in Alberta also dropped. Although the price of oil has lingered about $35-40 a barrel, the break even price is $70 a barrel. The oil crash that occurred in Alberta has brought grim news as unemployment in Alberta has increased drastically.

Gasoline is a essential resource to most family’s daily life. The price of oil has plunged dramatically and reached the level that was last seen during the recession of 2009, even though it has started to bounce back a little bit. Brent crude, the international benchmark of oil price, was around $53 a barrel at the end of January 2015. The constant decline of the oil price may have affected all oil-producing countries, including Canada. The experience of plunging oil price and deprecation of the Canadian dollar lead me to analyze how Canadian economy was hit or benefited by low oil price.

The price per barrel for oil has substantially fluctuated over the years, but in this current year of 2015 it has been kept to a reasonably low price. The price of crude oil WTI on the 21st of February 2015 is $50.34 US a barrel as

Within the last year, oil prices in the United States have dropped significantly. As oil drilling in the United States has reached its highest level in over 30 years, consumers are reaping the benefits. Among these gains are record-low prices at the pump, and cheaper oil to heat homes. However, oil prices did not just drop on their own; multiple factors contributed to the fall. Increased domestic production, declining global demand, and competition from other oil-producing nations had led to rapidly dropping oil prices across the United States.

Discuss how rising oil prices might affect the macroeconomic performance of an economy. (25 marks)

In this text, I concern myself with the contents of two articles based on recent microeconomics issues. During the last two months, the price of gas in the U.S. has been on an upward trend. Taking into consideration recent happenings on the international scene, this trend could have been triggered by many different factors. The articles I make use of in this case discuss the rising oil and gas prices.