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Running head: HOW WILL OPEC’S PRODUCTION CUTS AFFECT THE U.S. ECONOMY
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How will Opec’s production cuts affect the U.S. economy
Student’s name
Institutional affiliation
Outline
1. motivational research background
a. Facts about the United States’ economy and its oil production showing what it means
when there is a high production of oil and a low production of oil on the economy of
the country.
b. A case study concerning the United States oil demand and oil supply.
2. Introduction
Research objective
The objective of the research is to examine the trends of oil production cuts and how
it will affect the United States’ economy.
Research question
How will oil production cuts affect the economy of the United States of America?
Running head: HOW WILL OPEC’S PRODUCTION CUTS AFFECT THE U.S. ECONOMY
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3. Data and explanation. Countries are assumed to be small when their policies do not affect
the world market. On the other hand, a country is regarded as big when its policies affect
the world market. Oil production cuts in the United States affect the world oil market due
to its volumes of production. It is also relevant to the exchange rates.
Introduction
Motivational study background
Running head: HOW WILL OPEC’S PRODUCTION CUTS AFFECT THE U.S. ECONOMY
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The United States is ranked as the largest producer and the largest consumer of
oil. The United States plays a major role in the world’s oil market. Oil production cuts are
mostly affected by policy decision makers. The policy decisions are normally made by
the Congress and their decisions can affect the world oil market including its products
and their prices. Oil is mainly used domestically and at the industrial level. The policies
that are passed by Congress may either affect the prices of oil or oil production. This
further affects the consumption patterns of such oil impacts the economy of the country.
The extraction of oil from shale led to the cuts on the amount of oil imported to
the United States. In a case study of the oil production between 1900 and 2000s, the
economy of the United States was struggling due to the declines in the production of
domestic oil. During this period, oil wells in Texas among other states were still in the
business of production of oil but did not meet the demands of oil in the whole countries.
The advent of new technology in the later periods of the 2000s led to the increased
production of oil. Companies were allowed to draw gas and oil from oil wells that were at
some time considered exhausted by the energy. Greater production of domestic oil boosts
the economy of the country. However, as a country that is a seasoned oil producer, and
not just a mere consumer of oil, it is quite embarrassing to the economy when there is a
drop in oil production. This background motivates the research to be conducted
especially the extent to which oil production cuts can affect the economy of the United
States.
Research objective
The objective of the research is to examine the trends of oil production cuts and how
they actually affect the United States’ economy.
Research question
How will OPEC’s oil production cuts affect the economy of the United States of
America?
Data and explanations
When there are oil production cuts, investment and job growth is also affected negatively.
Less production of oil means that the people working in these oil wells will be laid off while the
investment will also be discouraged. Local businesses will be affected and the velocity of the
currency will be affected. The unemployment rate will go high and will affect the economy
adversely.
The graph below shows that when there are sharp oil cuts in the United States, the rate of
unemployment goes up. The oil sector employs so many citizens of the United States. The
American workforce is about 147 million whereby Traditional Energy and Energy Efficiency
sectors employed 6.7 million based on the official statistics of 2018 (National Association of
State Energy Officials, 2019). The oil production cuts will adversely render a substantive amount
of employees jobless. This means that there is an inverse relationship between the unemployment
rate and oil production cuts.
Running head: HOW WILL OPEC’S PRODUCTION CUTS AFFECT THE U.S. ECONOMY
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uneployment rate
oil production cuts
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Graph showing the relationship between the unemployment rate and the oil production cuts in
the United States.
OPEC’s production cuts will enable non-OPEC countries such as the United States to sell
more to the international oil markets. The supply growth by the United States will get a boost is
oil production is reduced by OPEC members. It is estimated that by 2023, the output growth of
the United States will grow by 3.70mb/d and this is more than a half of the total global
production capacity increment of about 6.4 mb/d that is projected by 2023. In a nutshell, this
means that if the OPEC countries will reduce their oil production, they will shrink their global
market providing the non-OPEC countries with an opportunity to expand their market and
command their own prices.
Source: International Energy Agency, 2018.
Running head: HOW WILL OPEC’S PRODUCTION CUTS AFFECT THE U.S. ECONOMY
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From the above graph, it is clear that LTO dominated by the United States maintains a
bigger share of oil production than other countries. The market share will further increase if
OPEC countries will cut their oil production.
Globalization and the strong global economy will underpin the global demand for oil.
The economic growth of the world is 3.9% as measured by the International Monetary Fund.
This means the demand for oil will be highly demanded. The graph below shows the world’s
demand for oil by 2023.
Source: International Energy Agency, 2018.
From the above data above, it can be deduced that the high demand for oil in the world will place
countries that produce high volumes of oil in a better position to sell their products. The main
competitor of LTO where the United States is a member is the OPEC members. This means that
if OPEC produces more of oil the United States will face stiff competition in the world oil
market. On the other hand, if OPEC cuts its production of oil, it means that the United States will
enjoy the profits from the world oil market as it will be minimal competition.
Running head: HOW WILL OPEC’S PRODUCTION CUTS AFFECT THE U.S. ECONOMY
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Growth of U.S economy
OPEC oil production cuts
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From the graph above, if the OPEC cuts there oil production, the economy of the United States
will face the growth as the country will enjoy a larger global market share. This growth in the
economy will also be accelerated by the strong dollar over other country’s currencies and also
attracting international borrowing and lending.
Results and conclusion
The United States is a major competitor of OPEC’s oil-producing countries. The
reduction of the supplier of oil to the market by OPEC countries is advantageous to the United
States while the reduced production of oil by the United States will enable OPEC countries to
enjoy a bigger market share. Oil cuts by OPEC countries will enable the United States to sell
more oil in the global oil market. More purchasing countries will increase the demand for the
dollar to use it buy oil from the United States thus making the Dollar to gain stability thus
boosting the economy.
References
National Association of State Energy Officials, (2019), 2019 Overview: The 2019 U.S.
Energy and Employment Report. Retrieved from; https://www.usenergyjobs.org/
International Energy Agency, (2018), Oil 2018. Retrieved from; https://www.iea.org/oil2018/
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