Oil Market & U.S. Economy



In June 2008, when the price of oil had crossed $120 per barrel, the predictions for the impacts on the U.S. economy were dire. Whereas just months previous, prices were expected to top out at $100 before returning to a more reasonable equilibrium point (Schoen, 2007), now the potential of $200 barrel oil came to pass, bringing with it economic catastrophe (Biderman, 2008). The short version is that demand for oil in the United States is relatively price inelastic. Therefore, as the price of oil increases, the amount of money that American businesses and consumers spend on oil increases. This reduces the amount of money available for consumer spending and industrial infrastructure investment. Ultimately, this harms the economy by concentrating capital flows to the petroleum industry. The capital eventually flows out of the country to the petroleum-producing regions.



This...
[ View Full Essay]