The sudden increase in oil production and the consequent plunge in oil prices is expected to take a serious toll on the United States economy. The United States is the largest oil producer in the world and that is why this serious reduction in prices will have visible financial consequences for the country. By midday of Monday, oil prices already fell by 17.4% and experts are concerned that due to the threat of recession looming over the country, consumers probably won’t be spending the money they save from these price reductions either.
When the US previously used to be a major consumer and not the biggest producer of oil, the reduction in oil prices was always very positive for the economy. However, now it is no longer the case and everyone is worried about how they will make a recovery from such a serious blow.
Bankruptcies and job losses are expected across the oil sector. The fact that more money is being demanded to help fund resources to stop the spread of coronavirus is not helping the financial situation of the country. Also, the idea that lower gas prices will increase consumer spending is unlikely, as due to the spread of the virus fewer people are driving around anyway so not much gasoline will be needed. Not to mention that flights are being canceled as well and this is resulting in a decreased demand for jet fuel, further exacerbating the problem.
Individuals are being encouraged by their workplaces to remain close to home and not travel anywhere until fear of the virus reduces.
Donald Trump has decided to see this on an optimistic note and he even put out a tweet celebrating that oil prices were coming down so it would be great for the consumer, which essentially is true. However, experts fear the worst and they believe the economy will be hit very badly before consumer spending can balance the scales once again. At any rate, all those professionals working in the oil sector will be affected and the increase in unemployment will further increase the chances of a serious recession.
How many people could be affected by the drop in oil prices in the United States?
In a recent study, it was concluded that the oil industry offers approximately 1.5 million jobs and most of these jobs are at gas stations. All of these individuals may be affected and those who have oil stocks will probably see a loss of potential income as well.
The dip in oil prices is a result of a sort of price war taking place between Russia and Saudia Arabia. Both countries decided to ramp up production of oil to reduce oil prices and hit the economy. They knew the United States would be affected by this decision and this was probably one of the motivators behind their idea.
The good news is that even though the United States is such a major producer of oil, oil refinement only makes up less than 2% of the overall economy so there are still chances that the entire country won’t suffer too much from the consequences of this foreign price war.