Oil Prices and Economic Outlook

Oil and gas prices have reached almost all-time highs with a "barrel of oil costing $109.77 a barrel" (CNNMoney, 2012). These oil prices are the highest since the bottom fell out of the stock market in 2008, where gas retailed at about four dollars a gallon. The rise of gasoline prices is puzzling because of the increased production of domestic oil, coupled with a decrease in demand for gasoline in the United States. The law of supply and demand states that when the supply of a product increases, inversely the price decreases because demand decreases, and vice-verse. But as we all know, the world is now a global economy, where tensions in the middle east effects markets around the world. The European Union placed an oil embargo on Iran in January, which has driven Iran to threaten to shut down the Straight of Hormuz. The sheer threat of closing down the straight will decrease trade significantly around the world, but mainly in European and Asian nations. This could cause the Asian markets, such as China to cool down, which would have an effect on the U.S. market. This all takes place in light of a recent economic recovery in the United States. This recovery could be halted with the global increase of gas prices, which as history shows that recessions follow spikes in the price of gasoline. There is however hope that Saudi Arabia will boost its production of oil, as well as the increased production of crude oil and natural gas in the United States. These two factors could help to alleviate fears and could continue economic growth world-wide.


Farrell, Maureen. "Will Oil Prices Kill the Stock Rally?" CNNMoney. Cable News Network, 26 Feb. 2012. Web. 26 Feb. 2012. <http://money.cnn.com/2012/02/26/markets/stocks_lookahead/index.htm?iid=HP_LN>.

NY1 News. "Senator Schumer Urges Saudi Arabia To Boost Oil Production." Senator Schumer Urges Saudi Arabia To Boost Oil Production -. 26 Feb. 2012. Web. 26 Feb. 2012. <http://manhattan.ny1.com/content/news_beats/political_news/156653/senator-schumer-urges-saudi-arabia-to-boost-oil-production/>.