Oil Prices and the Economy

Crude oil plays an important role in the manufacturing and worldwide distribution of numerous products ranging from food to electronics. When rising fuel costs are passed on to consumers, it can drive up inflation and reduce the purchasing power of wages. Gasoline and heating oil (which are derived from crude) are essential expenses for many households, so when prices spike there is less money available to spend on other goods and services. And altogether, consumer spending accounts for about two-thirds of U.S. gross domestic product (GDP).

For these reasons, high oil prices have long been blamed for driving down GDP growth, and it was widely assumed that low prices would provide an economic boost. But this relationship has become more complicated in recent years, largely because the United States has expanded its presence in the global oil market.

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What Changed?

Starting in the mid-2000s, new technologies including seismic imaging, hydraulic fracturing, and horizontal drilling have allowed U.S. producers to extract