In recent years, the scope of the oil market has changed. OPEC, headquartered in Vienna, Austria, was established in 1960 to unify the petroleum policies of its members. These 14 countries, mostly in Africa and the Middle East, are considered hotbeds for oil.1
However, the world’s two largest producers are the United States and Russia. Combined with OPEC member Saudi Arabia, the three produce more oil than all of the other OPEC members combined. The large amount of production results in excess supply and lower prices for consumers.
Moving forward, Saudi Arabia Crown Prince Mohammed Bin Salman is in favor of reducing production, so gas prices can rise and provide the revenues Saudi Arabia needs, while Donald Trump would prefer that prices remain low and Vladimir Putin seems indifferent.2
Oil prices were below $50 a barrel in early 2019, and the U.S. national average gas price was about $2.25 a gallon.3 Changes in gas prices tend to resonate with consumers because they’re so visible. Right now, a large automobile with below-average gas mileage doesn’t feel like much of a burden. But if prices rise, it hits home for consumers who suddenly must spend less on other goods just to fill up the family cars — and that can present a drag on overall economic growth.
It’s a lesson worth considering within our own household budget: The more we consistently save in some areas, the more we have to spend or save for others. If you’re looking for a sustainable way to generate more savings toward retirement, switching to a car with good gas mileage might not be a bad idea.
In the meantime, the United States’ goal to become less reliant on foreign oil is a test we may face in the near future. Hydraulic fracking helped make the U.S. the largest producer of crude oil in the world, and the International Energy Agency projects America’s oil production will equal that of Saudi Arabia and Russia combined within six years.
However, the news isn’t all positive. OPEC has opted to curb oil supplies to the U.S. in light of our increasing production and surplus inventory.4 The future of U.S. oil production threatens to destabilize our international partnerships, make the U.S. vulnerable to trade retaliation and generate more environmental concerns and climate change.5
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1 OPEC. 2019. “Brief History.” https://www.opec.org/opec_web/en/about_us/24.htm. Accessed Jan. 4, 2019.
2 Julian Lee. Bloomberg. Nov. 18, 2018. “The Oil Price Is Now Controlled By Just Three Men.” https://www.bloomberg.com/opinion/articles/2018-11-18/bin-salman-trump-and-putin-control-the-oil-price-now. Accessed Jan. 4, 2019.
3 U.S. Energy Information Administration. Jan. 4, 2019. “Today in Energy.” https://www.eia.gov/todayinenergy/prices.php. Accessed Jan. 4, 2019.
4 Collin Eaton. Reuters. Jan. 3, 2019. “OPEC sends fewest oil cargoes to United States in at least five years.” https://www.reuters.com/article/us-usa-crude-imports-opec/opec-sends-fewest-oil-cargoes-to-united-states-in-at-least-five-years-idUSKCN1OX1N3. Accessed Jan. 4, 2019.
5 Justin Worland. Time. Jan. 3, 2019. “How An Oil Boom in West Texas Is Reshaping the World.” http://time.com/5492648/permian-oil-boom-west-texas/. Accessed Jan. 4, 2019.