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Oil prices and economic effects
The effects of oil prices on the american economy chegg essay
Effects of oil prices on the economy
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How Does the Price Of Oil Affect the U.S. Economy? How does the price of oil affect the economy? Since the middle part of last century, the price of oil has become one of the contributing factors of a countries economic activity. The economist in the United States, state that the price of oil can make a direct impact on the economy. The price of oil has both a direct and indirect effect on many parts of the economy. The price of oil affects the price of gasoline, which in exchange helps the consumer make an impact on the economy. Industries in the United States also feel the effect of the price of oil both good and bad. Oil produced in the United States also has an effect on oil prices, which lead to a direct impact on the trade deficit. …show more content…
The industry sees both profit gains and losses due to the price of oil. The industry sees a rise in consumer spending and thus a larger profit. The airline industry seen a rise in profit from 2014 to 2015, in 2015 the airline industry showed a profit of $19.9 billion and in 2016 they saw a profit of $20.5 billion. Even though the airlines see a profit sometimes the yloose money. In 2015 Delta saw a gain of $1.7 billion thanks to lower oil prices, but lost $1.2 billion to fuel hedges. The rail industry has also seen the effects of lower oil prices. In January of 2015, CSX was charging $0.42 per mile and in February of 2015, they reduced that to $0.36 per mile. The trucking industry may see both long term and short term effect due to the price of oil. With the price of oil falling the trucking industry will be able to be more competitive with the rail industry. In 2015, the cost of a container mile was $1.82 and rail was $0.37 per mile. The long term effect that the trucking industry could feel would be that they can run routes based on effectiveness and not fuel savings, thus making them more …show more content…
One can also now understand how the price of oil has a direct and indirect effect on the United States economy. Not only does the price of oil affect gasoline, it affects many other attributes of the economy. Consumers are saving on average $700 and they are reinvesting about $560 of their savings. Industries, as well as the trade deficit bear the burden of oil prices. With the price of oil lower refiners see a profit increase. Oil Storage Company also see a profit in the amount of $0.60 in just one year. The price of oil is also being affected by the increasing amount of oil being produced in the United States. Both of these are directly impacted by the price of oil for the good and the bad. Oil prices also have a direct impact on how much the United States economy grows and it also has an impact on Gross Domestic Product. The currency rate and the exchange also have a direct impact based on the price of oil. Thus the price of oil has a bigger impact than one may be led to believe. So the next time you are at the pump think about how oil has an effect on everything and everyone around
Gasoline is one of the many conversation starters anywhere you go. People have different opinions on why gasoline prices are fluctuating at such a rapid pace. Some Americans have chosen a way of thinking towards the prices. Whether it be making up rumors or just plainly trash talking towards our government. You make ask yourself the same questions many economist do, why has the price of oil been dropping so fast?
...oline is affected by many different factors. The biggest factor is crude oil, but the supply and demand of crude oil will ultimately determine the price of gasoline. The supply and demand of crude oil and gasoline are also affected by several factors. The price is continually increasing and the supply is becoming harder to produce and deliver. So it seems we, the United States, need to find a way to slow down our fuel consumption and decrease our demand. This may be the only way to bring down the price of gasoline. I know I would not mind, because then I could use the extra $40 to buy a couple more DVDs for the kids to watch while we are running around town in the Expedition.
Fuel prices is an area of concern for the motor carrier industry. Fuel prices are at an all-time high, driving the industry to make drastic changes. Individuals in the industry believe that by reducing the demand for fuel is the best way to address the current fuel issue. One of the leading alternatives to this fuel issue could be natural gas.
The United States has had several scares throughout its history in terms of oil, most turn out to be over exaggerations of a small event. However, these scares highlight a massive issue with the U.S. and that issue is the U.S.’s dependence on foreign oil. Why does it matter that our oil should come from over seas? In a healthy economy this probably wouldn’t be as relevant, but the U.S.’s economy is not exactly healthy at the moment. There are 4 things that I would like to address: what the problem is, how it affects us, what some solutions are, and what solutions I feel are best.
There is a great effect on the economy due to the sale of gas. The major effect of
Gasoline and the economy, the impact it has on the society. The current gas prices have a larger impact on consumer spending, however not so much on the percent of gasoline purchased, after all people still have to drive themselves places. (consumer psychologist.com) A major increase in cost will be necessary to lessen the quantity demanded. Gasoline is too costly and harmful to the economy and the environment thereby society needs to find alternative fuels, which best serve, the society.
Currently, the most important factor in the rise of gas prices is the increasing cost of crude oil. Unfortunately, the United States has three percent of the world’s oil reserves. (Horsley) In 2009, the United States was third in crude oil production as well as the world’s largest petroleum consumer. (e. I. Administration) Such consumption required and still requires the United States to import petroleum/crude oil from other countries.
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
Wright, R. T., & Boorse, D. F. (2011). The U.S. dependency on foreign oil presents many negative impacts on the nation’s economy. The cost of crude oil represents about 36% of the U.S. balance of payments deficit. Wright, R. T., & Boorse, D. F. (2011). This does not directly affect the price of gas being paid by consumers, but the money paid circulates in the country’s economy and affects areas such as the job market and production facilities.
Southwest Airlines is operating in an industry that is struggling to make profits. The slowing economic growth and raising fuel costs are lowering earnings while revenues remain the same. The macroeconomic factors affecting the airline industry include unemployment, the economic growth in the United States, and inflation. With low economic growth, consumers are finding luxury items more difficult to purchase and airline tickets for vacations fall into that category. Unemployment contributes to a lack of vacation travelers since individuals who are not employed do not have extra money for vacation or airline tickets. Inflation also causes operating costs of the airlines to be higher cutting into profits.
Surging jet-fuel prices had a significant effect on the carrier’s operating results, as fuel is the group’s biggest single cost. Cristopher Pratt, chairman of Cathay Pacific Airways said Cathay pacific’s core business knock down into the red in the first half of the year because of indefatigably high fuel prices, the global economic fall and weak air cargo demand (Cathay Pacific blames fuel costs, 2012). Managing director of Air Cargo Management Group, Seattle, and the first issue for the air cargo industry is the forever-increasing price of fuel and fuel now symbolizes a greater percentage of total operating costs, Cathay Pacific increases about 39percent (Cathay Pacific 2013 profit, 2014). Operating costs include both fixed cost and variable costs. Fixed costs, such as overhead, remain the same regardless of the number of products produced; variable costs, such as materials, can vary according to how much product is produced (Mankiw et al, 2012).
Finding ways to move goods from one point to another at a reasonable cost and within an acceptable time frame is a growing challenge for global businesses today. The costs and risks associated with transportation are increasing with the advent of globalization and low-cost-country sourcing. Even for companies with local operations only, they have to supply their products to various parts of a country which increases the costs and risks. Since the cost of gasoline has been on an upward trend, high level of efficiency in transportation is required to lower the costs involved and the risks associated with the costs. Costs concepts in transportation include economic, social and accounting costs. The risks and costs involved increases if the various modes of transport are used. There has been concern over many businesses failure to strategically think when they employ multimodal transportation services. Many businesses prefer the least expensive multimodal model instead of choosing the most effective; this trade-off is very expensive with hidden costs and risks increasing significantly (Molenaar, Anderson, Schexnayder, National Research Council (U.S.)., National Cooperative Highway Research Program., American Association of State Highway and Transportation Officials., & United States, 2010).
The main reason for the price increase is that OPEC (Organization of Petroleum Exporting Countries) has decided to cut back on its oil production. What is the reason for this? Simply stated, OPEC knows that they have the United States under their control in terms of what price they want to sell crude oil to us at, and how much they want to ship. With the present economic prosperity in the U.S., it didn’t take long for OPEC to seize the opportunity to make more money by cutting production of crude oil, and thus forcing consumers to pay more for fuel. Just how much higher are prices you ask? “Crude-oil prices in early March hit $34 a barrel, while a year earlier it was selling for $12 a barrel, which is nearly a 75% price increase since last year. This equates to an additional 48 cents a gallon” (Logistics Management 15).
First, many Americans are cutting vacation time because of higher gas prices. Families cannot afford the longer vacation because of the higher prices, especially during the holidays. Many small businesses get a direct hit from slower economy, because people are not spending money. For example, many families cutting back in a necessity like food, health insurance and even going out for some time. Gas prices effect the middle class, also affects people in steady incomes like senior citizens.
record. The spike in oil prices, up by over 60% since the start of the