Oil Global Supply Effect on the American Economy

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Neuhauser, A. (2014). Why the Price of Filling Up Has Been Going Down. US News & World Report. Web.

What is the article talking about?

Alan Neuhauser explicitly expounds on the effect of global supply of oil on the American economy. He also puts it clear why the USA has cut ties with some of the major oil-producing countries. Neuhauser is a U.S. News & World Report’s Energy, Environment and STEM reporter. He explains that U.S. has engaged in the production of oil in order to curb the shortage of the product around the globe. From this perspective, the gas prices have reduced over the years. In fact, one of the analysts in the article, Ogan Kose claims that U.S. is oversupplied with oil since it has cheap crude oil.

Neuhauser claims that oil demand could have decreased as a result of using fuel-efficient vehicles, therefore, leading to consumption of less fuel. In addition, the decreased demand could be as a result of more Americans opting not to drive. The article implies that the prices might be plummeting due to less costly pumps being placed at some retail stores as an additional service and not as sole business enterprises. It is also important to understand that the on-going promotion of alternative energy sources is having an impact on oil demand.

How does this article relate to a particular economic topic that was discussed in the course? Explain

The article expounds on how the supply of a commodity affects price and demand of the same. In this case, the supply of oil is a leading factor for the increased gas prices. Tom Kloza, who is a GasBuddy’s chief analyst of oil thought that the supply, as well as the market, would be threatened due to the existing quagmire between U.S. and world’s biggest oil producers. On the contrary, the prices went down since U.S. started the production of the gas.

In addition, oil supply is having an effect on the product’s demand. Neuhauser puts it clear that the increase of the product’s supply causes a decrease of oil demand. Paul Sullivan, a professor of economics argues that the world is on a slow growth. Therefore, the decreased demand could also be due to other constraining factors other than supply. As Neuhauser explains, it could be due to using of the fuel efficient vehicles or non-driving Americans. In the recent years, majority of the American are buying vehicles that consume less fuel. In addition, public transport in the United States is becoming a critical factor in reducing cost associated with gas consumption.

What other perspectives and deeper insight can you offer to the article given your understanding of economics and what can you add beyond what is discussed in the article?

Oil production and fuel consumption come with various effects on the environment and hence creates the need to discuss externalities. In order to increase the supply of oil in the country, taking to consideration of loose ties with mega oil producers, the government starts the production of gas from crude oil. Except for the cost of production, the government needs to add extra cost to ensure that emissions are kept at bay, and they do not pose a significant negative effect on the environment. In addition, as the prices fall, more fuel could be consumed as indicated by the monthly projection of Energy Information Administration. Consequently, this will lead to a negative externality in terms of emission.

It is important to discuss how increased supply will affect taxes and the impact of same to the economy. Taxes will have a great impact on the prices of the commodity, as well as, the demand of the same. While considering taxes, it is important to consider benefits that are brought by externalities.

Reference

Neuhauser, A. (2014). Why the Price of Filling Up Has Been Going Down. US News & World Report. Web.

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Oil Global Supply Effect on the American Economy

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