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Higher Oil and Gas Prices Affect U.S. Economy

todayJuly 7, 2021 5

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Experts believe this period of fuel inflation will end shortly. However, it may affect President Joe Biden and the Federal Reserve’s support if it goes on longer than expected.

What We Know:

  • West Texas Intermediate hit $76.98 a barrel on Tuesday while the Organization of the Petroleum Exporting Countries (OPEC), Russia, and its allies continue to disagree on production increases. Gas prices reflect this issue; the American Automobile Association (AAA) reported that the average price for a gallon of gas went up to $3.13 this month. The AAA also noted that gas might rise another 10 to 20 cents through the end of August.
  • Additionally, oil and gas prices are skyrocketing as people re-enter the world after the coronavirus pandemic. Last year, gas cost an average of $2.18. The elevation in prices comes amid the country’s fastest inflation in years due to revived consumer activity and supply-chain bottlenecks. The New York Times writes that this may affect President Biden’s overall public support as he tries to convince them his policies are helping the country regain footing. It may also hurt the Federal Reserve (Fed).
  • Economic research implies that the prices of items consumers often buy, such as gas, impact their expectations for inflation. David Wilcox, a former Fed economist and current senior fellow at the Peterson Institute for International Economics in Washington, says that public opinion surveys show increasing concern for elevation. In addition, rising oil prices raises the risk “of a more lasting shift in expectations.”
  • White House Press Secretary Jen Psaki said the Biden administration began monitoring the increased prices and would contact Saudi Arabian officials and other producers; she also informed the media that Biden does not hold full control of the prices. Psaki further mentioned that what greatly impacts gas prices is “the supply availability of oil.”
  • She also stated that the President greatly opposed an increase in the federal gas tax, which some Republican senators and business groups suggested helping fund spending on infrastructure. Alongside this, the bipartisan deal reached last month did not include a gas tax increase.
  • Energy experts believe expensive fuel prices will not last long. The New York Times declares that gas production will eventually decrease, especially with a new nuclear deal with Iran and relaxation of US-Venezuela relations.

Furthermore, RSM’s chief economist Joe Brusuelas says he will begin to worry about the economic impact if barrel prices get to $120.

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