For the past few months, Saudi Arabia has flooded the global market with oil. At face value, this rapid increase in crude oil seems to be beneficial for the United States. The price for oil has reached a 13 year low, which is great for student drivers at a commuter school like Manual. However, when the oil surplus actually decreases, the current oil bubble could lead to a large spike in gas prices and potentially a minor recession in the United States and Europe. On a local level, everyday goods and necessities will become more expensive if oil prices cause almost all shipping costs to climb.
Rather than being a part of natural business cycle, the current surplus is artificiality created by Saudi Arabia flooding the market with oil to contain ISIS and Iran. However, this has dealt OPEC countries like Venezuela and Russia the short end of the stick, made evident by the ruble’s (the Russian currency) recent plummet in value when compared to the US dollar. This drop is also visible in Venezuela, as they have started to import oil from the United States. This shows that the Saudis have unexpectedly marginalized almost all other competition. The effects could be foreboding for the United States.
Currently, gas prices in the United States are around $1.77 per gallon. This has affected students and faculty in a very positive manner. Additionally, compared to the prices last year, gas prices have more than halved. Most parents have noticed this change and Ms. Krista Just, Manual’s Guidance Office’s Administrative Assistant, has said that this change has allowed her to “have a more disposable income.”
When comparing the current average gas price of $2.29 to the all-time high in 2008 of $4.11 per gallon, there is a stark difference on a day to day scale. 2008 was in the heart of the housing financial crisis. Today, we have the exact opposite of that crisis: an oil surplus. Even though ‘surplus’ has positive connotations, with regards to specific goods like oil it can sometimes have adverse effects in the long run. Among the most direct of these impacts is a rise in consumption. Retailers will gain more revenue due to an influx of spending since low gas prices allow for increased travel.
The resulting decrease in the price of goods along with an increase of wages lends itself to a minor spell of deflation. In Dec. 2014, the over-the-year change in wages was approximately 1.76%. In Dec. 2015, the oil price decline has influenced wages such that there has been an increase through the year by 2.6%. This increase is largely due to the increase of supply of oil, and thus there is a boom in wages.
All of these changes have been beneficial in the short run. However, the economy is cyclical, and in the long run, there’s reason to believe that a minor setback is a natural part of the process. After all, Saudi Arabia isn’t going to continue restricting oil production forever. The oil supply more likely than not will sharply decrease and the oil bubble will in all likelihood pop. This will lead to a large spike in gas prices and therefore a minor recession in the US and Europe. Locally, everyday goods will probably become more expensive.
Currently, oil prices are making all of our lives better. But we shouldn’t get too comfortable. As spring break and summer vacation quickly approach, prepare to start paying more on gas and everyday goods the height of summer vacation.