September 5th, 2010
How Oil and Gas Prices Affect the Economy
While supply and demand affects oil and gas prices, the United States and surrounding countries may be suffering economically due to their intense dependence for crude oil. The effects on our economy today are somewhat extreme. Population growth combined with current unemployment rates have temporally brought on a recession. According to Dictionary.com (2010) “a recession is defined by a significant decline in activity spread across the economy, lasting longer than a few months.” Over the past 20 years our economy has seen the effects of both recession and economic growth. Many of the changes we face today are because of several factors, but the most influential could be oil and gas prices. The United States does not stand alone on the inflation of gas prices though surrounding countries are trying to cope as well. High oil prices are of significant importance to the world’s economy, and can cause adverse reactions. Although most economies have become adaptable over the years, countries are still trying to find ways to deal with these changes. Oil and gas prices rise or fall daily and global demand is growing as well. Although the United States was once a major exporter of oil, today it relies on foreign exporter to supply most of their oil needs. The United States exports oil from Canada, Mexico, Saudi Arabia, and Venezuela, just to name a few. These foreign countries supply the United States with 60 percent of their oil needs. The other 40 percent comes from such states as Alaska, Texas, and California. In such cases of an emergency, such as a hurricane, the United States maintains an oil reserve. According to Amadeo (2010) “The U.S. uses 20% of the world’s oil” (para. 6). The amount used for transportation is two thirds of the worlds oil and this includes what oil is used for heating during the winter months in the 20 percent. Europe accounts for 15 percent of the world’s oil consumption with China following at 10 percent. Federal and state taxes plus distribution costs affect how much we pay per gallon we pump into our vehicles. The United States federal gas tax is 18.4 cpg, cpg stands for cost per gallon. States taxes can range as high as 32.1 cpg. According to About.com (2010) ( ‘Crude oil accounts for 55% of the price of gasoline, while distribution and taxes influence the remaining 45%”). Ten or even 20 years ago gas prices were not that high. In 1980 the price for a gallon of gas was a dollar twenty five and in 1990 the price was a dollar sixteen a gallon in the United States. Today we face gas prices from around two dollars and forty five cents to three dollars a gallon. In 2008, gas prices topped out at almost four dollars a gallon in the United States. Yes, gas prices have come down since 2008, but the effects of high gas prices still influence the United States economy. Americans have learned to cope with this inflation by cutting down their spending. Other countries though are dealing with even higher gas prices today, Amsterdam, Netherlands pays six dollars and forty eight cents a gallon, London, United Kingdom pays five dollars and seventy nine cents a gallon and Dublin, Ireland pays four dollars and seventy eight cents a gallon, just to name a few. Imagine the effects that rising prices may have on their economy as well. Other countries that are oil exporters possibly do not suffer as much from the high gas prices like the rest of the world. If we lived in Cairo, Egypt for example the price of gas is sixty five cents a gallon or Lagos, Nigeria where gas is thirty eight cents a gallon. Although no one in the United States would complain about paying 65 cents or 38 cents for a gallon of gas but think about the effects on that country. The truth is the thirty eight cents a gallon those countries pay might not look like much to us but...