Impact of escalating gas prices on the U.S. Free Essay Example

The oil prices have been creeping higher in the recent past and the current gas market conditions in the United States of America are very uncertain as well as unstable which has further led to a lot of negative effects on the gas consumers. The gas prices have been rapidly escalating in the American markets which have led to the amplification of the medium term economic effects. The American economy’s prosperity remains at risk for as long as the oil prices in the country remain very high and also unstable.

The increasing oil prices in America also quantitatively affect the country’s macro economy. The impact of the escalating oil prices on the US economy The oil prices in America remain a very important determinant in the overall performance of the country’s economy. It is also important to note that the overall increase in the oil prices in America has further led to a transfer of income from the American economy to the exporting countries through a trade shift.

In America the degree of the direct effects of a specified gas price is highly determined by the share of the oils’ costs in the income of the country and also the ability of the gas users to reduce their personal consumption and wholly change from the gas to other alternatives. The increasing gas prices in America has also highly affected the rate of inflation since in most of the times the consumer price index has been on the increase and this clearly shows that there is a correlation between the oil prices movements and the changes which occur in the rate of inflation.

This then clearly stipulates that the increasing oil prices in America further drive up the imported oils costs and in general terms the rate of inflation. (Anne, 2007) With the worlds demand for oil rapidly increasing and the oil supplies very limited, then the American economy is more likely to suffer the damage in the short as well as long-term. The high oil prices in America are amongst the key factors which have made many economists to scale back their predictions for the country’s economic growth in the present year.

The country’s economic growth rate has highly reduced because of the increasing oil prices and this has resulted to a growing rate of unemployment in America. (Brown, 2004) The gasoline prices in America are expected to even hit new highs since the American refineries are currently producing as much gasoline as they can include other oil products. In the larger picture the American authorities have not built any new refineries or even upgraded the old ones because of the environmental and the regulatory concerns.

If the oil supplies were to greatly increase then the supplies of the major oil products would not substantially grow and thus the gas prices and the other refined products would stay very high. (Harvey, and Ted, 2007) The higher oil prices in America also highly spurs inflation and this further leads the federal reserves to push the interests rates up and this in turn causes the car loans the mortgages and the credit cards to become much more expensive than they already are. This whole issue sends a lot of ripples through the financial markets in America.

The rising rate of inflation tends to highly affect the bond prices which further reduces the economic growth that could help in keeping the interests rates down. When the gas prices go up then the bond prices also go up because the economic growth rate is very slow but this does not similarly apply to the stock markets. On the other hand the high gas prices have a negative impact on the stock markets as this leaves the consumers with very little monies to spend as this also undermines the corporate earnings which are key to the prices in the stock markets.

The depreciating US dollar has contributed to the escalating gas prices which are partly based on the dollars value. Source: Anne, F. (2007): Comparison of US gasoline Vehicle Fuel prices in the U. S. Pedant Centre on Global Climate Change, Washington In America the hurricane threats to the oil platforms, the labor strikes, the terrorist threats and the fires at the oil refineries and also other problems which are short lived they all are not wholly responsible for the escalation of the gas prices. They however push the gas prices higher but they are not the fundamentals in causing the high escalating gas prices.

(Department of Transportation National Highway Traffic Safety Administration Office of the Chief Counsel 2006) Currently there has been an increasing speculation in the oil market globally and therefore there is an increase in the American gas prices and this could extend into the long term. America has the highest and the largest oil demand so far in the world and therefore the depleting domestic production and also the expanding demand by the oil consumers in the US further leads the country to import oil from the foreign countries. This dependency then has made the country very vulnerable to any disruptions in the oil supplies.

In America the increasing gas prices makes the other unconventional sources of oil very attractive to the businesses. For the working class in America that includes those who earn their living without any benefits and also those who have older vehicles with an average of less than 20 MPG, they are usually faced with several alternatives. They commute by using the public transportation, the light rail, the rapid transit as well as the bus, they also carpool, scooter, motor cycle, walk or even bicycle or even relocate to the inner city if one resides in the areas that are suburban.

Surprisingly many businesses are also moving away from the 24 hour operation since the higher gas prices are highly discouraging the lifestyle trends of the past. Some restaurants and also cafes are also closing down very early and they are well known for their 24 hour operating cultures. The airlines have also been heavily affected by the same and they have not been left out in introducing the fuel surcharges or they can even scale back their operations in efforts to trim the fuel costs which are spiraling.

The high gas prices has also affected the schools in many districts and particularly the large school bus fleets have reduced since the schools can no longer maintain to run the high fuel costs of the buses. The ongoing gas hike in America has worried very many people especially the consumers who are spending so much The American economists further state that if the Americans will have to spend more money on their gas consumptions then they will definitely have very little money that is left for to spend on the other goods and services.

Also as the gas prices go up then the prices of other goods and services especially the foods also go up. The gas prices in America are highly affected and driven by the costs of the crude oil and the escalating oil prices in America are being attributed to the to the high Americans demand . An example of this is that during the summer vacation seasons most of the American family’s require more gas since they use their vehicles for the long trips. (Bearn, 2003) Conclusion There are many reasons that lead to the increased gas prices in America and also the decrease in oil supply.

This has been partly because of the Middle East’s growing turbulence and it is the world largest oil producing region in the world. In the hurricane Katrina scenario the supply flow from the gulf coast offshore rigs which is the largest oil source in America for the domestic market was heavily crippled. This further led to the a temporary shut down of two major on shore pipelines and also at least 10% of the country’s refining capacity was not in operation in the storms wake.

In America despite the increase in the gas supplies the prices have continually raised at a very fast rate than in the past and this has further led to an increased discussion on the theory of the peak oil and a future possibility that would see the supply of oil highly reducing. Some experts say that even though the oil supplies themselves are not reduced the easily accessible light sweet crude sources have almost been exhausted and in the future the Americans will depend on the more expensive sources and alternatives to the heavy oil. (Anne, 2007)

The united states of America always keeps about 700 million crude oil gallons for storage to cover far any national emergencies but this reserves have gone down to 650 million gallons as more oil is being diverted from the reserves to the markets at large.

Reference:

Standard & Poor’s DRI, The U. S. Economy, issues 2000/12, 2001/1, 2001/2 and 2001/3. WEFA, US Outlook, issues December 2000, and January, February and March 2001 Brown, S. (2004): U. S. Gasoline Prices on the Rise Once Again, Federal Reserve Bank of Dallas Expand Your Insight, May http://www. dallasfed.org/eyi/usecon/0405gasoline. html ASEAN Competitiveness Study, McKinsey & Company, August 2003 Higher Global Oil Prices Implications for Asia in 2005, Asian Development Bank, 2005 http://www. adb. org/Documents/Books/ADO/2004/update/part030200. asp Developing Asia and the World, Asian Development Bank, 2005, http://www. adb. org/Documents/Books/ADO/2004/update/part010000. asp Higher Global Oil Prices Implications for Asia in 2005, Asian Development Bank, 2005 http://www. adb. org/Documents/Books/ADO/2004/update/part030200. asp Switch it Off, The Asia Section, The Straits Times, June 2, 2005