By: Luke Calabrese
We all know the pain in our pockets that comes with filling up our car when gasoline prices are on the rise. The price per barrel of oil in the United States has risen 40% (up to around $71) in the past year, yet the U.S. economy seems to be doing fine. An upswing in oil and gas prices would normally have a negative impact on the economy due to consumers spending more of their paycheck on gas for their cars and heat for their homes over other things. However, the economy grew at its fastest rate in four years during the 2nd quarter. Michael Maher, an energy researcher at Rice University states, “Because the U.S. now is producing so much more than it used to, the rise in oil prices is not as big an impact as it would have been 20 years ago or 10 years ago.” 10 years ago, The Unites States imported 10 million barrels of oil a day. Now, with increased production, we only import 6 million barrels per day while producing 10.9 million. In fact, the United States is now the largest oil producer in the world as of this summer, surpassing Russia and Saudi Arabia.
When the price for oil began to fall during 2014, United States energy producers downsized as a result. Thousands of people lost their jobs and they spent less on resources such as steel pipes and oil rigs. This balances out some of the economic growth that comes with more consumer spending. Now that oil prices are back on the rise, domestic energy companies are reacquiring many of the assets that they dropped back in 2014. Rises in crude oil prices also tend to have a positive effect on the alternative energy industries because people begin to look for cheaper substitutes.
Now this all begs the question: will the United States eventually see an economic down turn as a result of the rise in oil prices?
Economists at Moody’s analytics believe that if the prices of oil continue to rise we could begin to see the negative effects of this upswing. In fact, for every 1 cent that gas prices go up per gallon, spending by consumers drops 1 billion that year. This trend could eventually be harmful to the economy. However, consumers are much more equipped for rise in gas prices than in previous circumstances, with higher wages and a much more secure job market.
Individuals are never happy when gas prices rise though, which has forced President Donald Trump to speak out tweeting, “We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!” This comes as midterm elections are on the horizon and voters will be deciding which party will have control of the house and the senate. With current gas prices at a national average of $2.85 per gallon and rising, consumers become worrisome of rises that occurred earlier in the 21st century where gas reached highs of up to $5 per gallon. Only time will tell what will happen to the economy as a result of fluctuations in oil prices.