Inflation Adjusted Oil Prices
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It is a well accepted fact that inflation extends its tentacles in all spheres of the economy. Studies have revealed that, despite inflation, United States of America is going strong. At least, the oil prices are driving the economy ahead. Inflation has not been able to lame the US economy. Owing to inflation adjusted oil prices, a common man is paying much less as compared to what he had to shell out. For instance, it was seen lately, that had there been no inflation adjusted oil prices, one had to pay approximately, USD$100.52 for the whole month. Due to inflation adjusted oil prices, one has to pay as low as USD38. This amount is less than half. Here lies the advantage.
An overview of how inflation adjusted oil prices happened:
The period between 1946 through 1970, was when the nominal price of oil was fixed. But it was observed that inflation adjusted oil price dropped somewhat. This resulted because the oil prices were determined by OPEC or Organization of Petroleum Exporting Countries as well as Arab Oil Embargo. Before, OPEC and Arab Oil embargo took over, the United States government, had oil produced at a controlled price. The oil producers were instructed to do so. Hence, production of oil had subsided. As a result of the decrease in production, more oil was brought into the country. If oil prices are intentionally held back, it boomerangs, causing massive distortions in the economy and in the oil sector, in particular. The price of oil remains in a floating state in an effort to revert back to the actual price of oil.
Some analysts say that the trouble with oil prices was initiated with the crash of Exxon Valdez. Due to the crash, several million barrels containing oil was lost. Many such incidents added to the woe and finally, governments worldwide, outlawed tankers, which were single hulled. This led to the scarcity of tankers, which are single hulled. Tankers, which are double hulled are costly. To add to the woes, there was a scarcity of refineries as well as pipelines. Things have however, changed since and it is likely, that the drawbacks will be addressed, at the earliest. Reviewing the obstacles at a glance, we are able to identify the hindrances.
- Lack of proper transportation
- Increasing oil demand
- Production at its maximum.
It was noted in the early 1980s that price of oil reached an all time high. The factors mentioned above necessitates inflation adjusted oil prices to rule. If inflation adjusted oil prices are not taken into consideration, the economy may be affected to a great extent.
