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Gas prices: US and Britain's role reversal

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Mike Blake/Reuters/File

(Read caption) A commuter drives past a gas station signage displaying current prices for self serve and full serve gasoline in La Jolla, California March 8, 2012. According to Karlsson, the US importation of fuel has dropped dramatically, while it has increased in the UK.

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As I've explained before, the answer to the question of whether higher prices are good or bad depends on whether you're a seller or a buyer. If you're a seller, then higher prices are good, if you're a buyer they're bad. In the question of oil prices, this means that countries that are net exporters of oil, such as Iran, Saudia Arabia, Russia, Norway and Canada, benefits if oil becomes more expensive, while countries that are net  importers, such as China, Japan, Germany, France and Sweden loses if oil becomes more expensive.

Until recently, the United States was a big net importer of oil, while Britain was a small net exporter of oil. This meant that higher oil prices harmed the U.S. economy, but had a slightly positive effect on the U.K. economy.

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This is to some extent changing. While the U.S is still a large net importer, a combination of falling consumption and rising production in states like North Dakota has significantly reduced net imports, meaning that while a higher oil price is still negative for the U.S. economy, it has a smaller impact than a few years ago.
By contrast, a dramatic drop in U.K. oil production in recent years means that not Britain has gone from making small gains from a higher oil price to suffering great losses.

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This is evident in the latest U.K. industrial production report. While manufacturing alone rose in January by 0.1% compared to the previous month and 0.3% compared to a year earlier, overall industrial production fell by 0.4% compared to the previous month and 3.8% compared to a year earlier because "oil and gas extraction" fell by 3.3% compared to the previous month and 23.9% compared to a year earlier. Compared to 2008, oil and gas extraction is down by 37.5%. While U.K. consumption is also down, it has fallen by far less than production, turning Britain from a net exporter to a net importer.

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