Last week, the price of oil nudged above $70 per barrel for three days. In years past, that kind of price increase would have economists break out in hives, and US consumers steer clear of stores. Almost miraculously, however, that hasn’t happened.
In fact, it’s quite the opposite. The economy is improving, and according to AAA, most drivers are noticing a cumulative drop in prices at the pump. The reason for this development is the surge in United States oil and gas production.
Of course, while domestic oil production acts as a dam, their impact is temporary. Eventually, the rest of the world will need to play along to make things right. Fortunately, they seem to be getting the picture.
Longstanding economic belief holds that when the international price of oil sees a spike, it’s damaging to economies across the globe. It makes sense, of course. When drivers have to spend more money on gasoline, they have less money to spend elsewhere. As such, when you find that the price of oil has risen about 40 percent in the previous year, it would appear that economic ruin can’t be far behind.
Paradoxically, however, the United States economy grew at its quickest speed in four years over the second quarter of 2018. According to NPR:
“Boosted by a 4-percent jump in consumer spending and a 13.3 percent surge in goods exports in the second quarter, the economy expanded at its fastest pace since the 4.9-percent rate of the third quarter of 2014.”
The Trump administration called the growth, “an economic turnaround of historic proportions.”
The Domestic Oil and Gas Industry Is Saving the Day
The reason that the rising price of oil hasn’t hit home (or the gas pumps) is the robust production of the United States oil and gas industry, which is ramping up production to meet the enormous demand.
Just as most of us were hitting the road this July, United States oil and gas broke a milestone in production, producing 11 million barrels per day for the first time in United States history. The landmark makes the US the second-highest producer of crude oil in the world behind Russia, who broke the record the month earlier. It’s this titanic effort from oil and gas that has allowed everyday Americans to weather the international turmoil in relative ease.
Domestic Production Is Only One Half of the Equation
Of course, the resources and production capacity of the United States is a finite thing. What’s more, every drop of that 11 million bpd isn’t going to the United States. We have orders to fill and friendly nations to aid. To ensure the impact of an oil price hike doesn’t eventually hit our shores, it’s going to take a team effort and some strong leadership.
Enter Donald Trump.
We protect the countries of the Middle East, they would not be safe for very long without us, and yet they continue to push for higher and higher oil prices! We will remember. The OPEC monopoly must get prices down now!
— Donald J. Trump (@realDonaldTrump) September 20, 2018
Prodded by Trump’s plea for international cooperation, Russia and OPEC’s member nations announced that they would hike their own production as much as possible to meet worldwide demand.
For now, it would appear as though the price of oil has nowhere to go but down even as production grows around the world.