Oil Prices Lowest In Years — Should Consumers Benefit Or Will The Economy Suffer?

Oil rig at sunset.

The price of oil has dropped in the past month, lower than it has been in recent memory. In some locations in the U.S., prices average around $2 per gallon; but some areas are selling gas for as low as $1.65 per gallon. That’s roughly half of what it was this past summer. According to the Boston Globe, oil prices have dipped below $50 per barrel due to the rise of supply and the decrease in demand. While it may be obvious that motorists are benefiting from plummeting oil prices in the short term, economics tends to complicate issues in the long term. Oil prices affect the global economy and countless industries, even those which don’t initially seem to depend on the price of oil.

According to BBC, U.K. Chancellor of the Exchequer George Osborne has stated it is “vital” that consumers do benefit from the drop in oil prices. With oil prices as low as $50 a barrel, Osborne believes that these low costs must be passed on to families filling up at petrol pumps. While oil prices are low, that does not guarantee that the price of utilities or airfare should decrease as well. To ensure that consumer prices do fall, Osborne has started a Treasury investigation to determine which companies are reducing costs as a result of oil prices and which ones are keeping the savings for themselves, according to The Week.

Even if companies do pass on the benefits of low oil prices to their consumers, that doesn’t mean the economy of any given nation will benefit in the long run. According to Forbes, falling oil prices are not advantageous for companies extracting oil or natural gas, or constructing oil pipelines. The sudden dip in oil prices means a sudden decrease in profits for producers, which could lead to slow economic growth–both in the U.K. and in the U.S. High oil supplies are winning out over demand, which causes the price of commodities to fall, sometimes below the potential for profit. These effects might not be immediate, but they might indicate that low oil prices aren’t always a cause for celebration.

The Guardian is also cautious of dropping oil prices, claiming that oil-dependent nations like Russia could react unpredictably and even dangerously to the low demand. In fact, the decreasing demand for oil could be a result of the global economy already suffering–meaning low oil prices could be both an economic danger and a result of an unstable economy.

What do you think about the drop in oil prices? Have you benefited?