The Economist: Benefit of cheap gas depends on ‘sheiks vs. shale’ tussle

Cheap gasoline provides an overall economic benefit, The Economist writes in an article titled “Sheikhs vs. shale.”

The price drop of some $40 since June (from above $110 to about $70) has shifted “some $1.3 trillion from producers to consumers. The typical American motorist, who spent $3,000 in 2013 at the pumps, might be $800 a year better off—equivalent to a 2% pay rise.”

But will oil stay cheap? That’s the big question. How long the economic benefit of depressed prices lasts depends on:

” … a continuing tussle between OPEC and the shale-drillers [in the United States]. Several members of the cartel want it to cut its output, in the hope of pushing the price back up again. But Saudi Arabia, in particular, seems mindful of the experience of the 1970s, when a big leap in the price prompted huge investments in new fields, leading to a decade-long glut. Instead, the Saudis seem to be pushing a different tactic: let the price fall and put high-cost producers out of business. That should soon crimp supply, causing prices to rise.”

In short, gasoline is cheap now. We need to ensure it stays cheap.

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(Photo credit: Dan Weinbaum, posted to