The Impact of Oil on the US and European Economies

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According to experts, the plunge in oil prices renews weaknesses within the already worrying global economy, which could shake up governments that depend largely on oil-based revenue. At the same time, reduced oil prices could provide benefits to consumers, giving individuals more money for other things and lowering corporate costs.


According to experts, the plunge in oil prices renews weaknesses within the already worrying global economy, which could shake up governments that depend largely on oil-based revenue. At the same time, reduced oil prices could provide benefits to consumers, giving individuals more money for other things and lowering corporate costs.

Partially due to the success of shale oil in the United States, the world is now brimming with oil. However, because demand from major economies is still relatively weak, prices are falling, and Citibank analysts suggested that global oil supplies exceed demand by about 700,000 barrels a day.

Crude oil dropped by 10% in November, or $7.54 a barrel. Since hitting $107 a barrel in June, the cost is down by more than half.  Brent crude, the international benchmark, fell 3%, to $70.15 a barrel.

The Impact on North America

The US is likely to receive an outsized advantage from low oil prices because it is the largest consumer of oil in the world. Recently, many US consumers have expressed delight at the lowest gasoline prices since 2010. Drivers in particularly low cost areas of America, such as Missouri, South Carolina, and Oklahoma, could see gas prices lower than $2.00 per gallon. It could be lower if the anti-growth Obama administration would allow fracking on federal lands. The Dept. of Interior will not allow fracking on federal lands.  This keeps unemployment and fuel prices artificially high.

The November US national average price for gasoline fell to $2.79, and experts suggest that gas could eventually be $1 per gallon less than the June peak price of $3.70. For those who burn 60 gallons of fuel a month, this would equate to a saving of $60 per household.

The Impact on Western Europe

As many European countries are large oil importers, the lower prices are likely to provide a small, but welcome economic boost. Lower energy prices reduce industry costs, putting extra money into the pockets of consumers. This is more important in the 18-nation Eurozone, where levels of unemployment are much higher. They are not helping themselves by continuing to vote for leaders that do not understand business.

However, it is worth noting that lower fuel prices also add to one of the biggest problems for the Eurozone, low inflation. It becomes more difficult for struggling economies such as Greece to reduce their debt and overcome economic troubles. This issue is also a serious problem for the Central Bank of Europe, which would ideally like to boost inflation to its target 2%, from 0.3%.

The few countries that do produce oil in Europe, mainly Norway and Britain, could face a significant drop in revenue that could negate the positive effect of cheaper fuel.

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