Oil prices have skyrocketed over the past few months and while its prices have fallen quiet a bit lately, the economy is not much better. The inflation has gone down because of cheaper oil and food prices though policymakers say it has not gone down enough. The wages haven’t gone up enough to match the inflation and the oil is costing companies a big chunk of money. Some companies are not able to make profits due to high oil prices causing some of them to shut down. That’s why policymakers need to be careful not to over stimulate the economy when there is an oil shock happening.
When something is scarce and the demand for it is high, the price is usually high as well. And since gas is a non-renewable resource and getting scarcer as time goes, the price for it has gone up. But it’s not infinite; the price can only go do high. Once it reaches a point where it’s so high that the demand for it goes down, the prices will drop. Sometimes a company or a country cut the supplies of oil so there becomes an overwhelming demand for it that the price goes up and they can sell it for the high price.
I believe oil prices are failing because people simply aren’t going to pay anymore for gas. A lot of people are already using other ways to get around instead of driving their cars. A lot of airlines have gone bankrupted because they weren’t making any money when they were in business and some were actually losing money every time they fly. So the demand for gas has gone down. Also since there was such a big inflation to housing and other good, no one was spending money because everything was just too expensive, there was a big drop in the market making everything go down in price. Though the prices are low, I don’t think the low cost will last because the oil countries are cutting the production of oil to make the prices go up once again.
http://www.economist.com/finance/displaystory.cfm?story_id=12209376
