Category: Gas Prices

Introduction

It is a fact that the global increase in gas prices has to lead to various changes in the consumption of products across different industries. Of particular interest in this context are the energy and auto industries whose current products have suffered low demand due to changes in consumption trends. For instance, in the U.S., which provides the largest consumer market for automobiles, consumers have significantly changed their driving habits besides preferring other automobile models at the expense of the ever-profitable fuel-guzzling luxurious trucks and SUVs since the gas prices hit the all-time high of $ 4 per gallon (Strategic Management par. 1).

Consequently, analysts note that the American automakers have once again found themselves trailing their European and Asian counterparts in terms of responding to the ever-changing consumer needs and attitudes. Here, it is worth noting that most consumers will prefer energy-efficient models of vehicles relative to changes in the global fuel prices, which may not be decreasing in the near future (Strategic Management par. 3). Currently, many consumers are more concerned about the Changes in global warming, and as a result, their attitudes towards powerful SUVs and other fuel guzzlers are changing because the availability of alternative technology models in U.S. markets has broadened consumer options.

Furthermore, the increase in global fuel prices is also affecting other sectors associated either directly or indirectly with the auto manufacturing industries. For instance, it is certain that the high fuel prices have led to the high cost of steel, which is a paramount raw material in auto industries. Consequently, there is a need for automakers to re-evaluate their strategies relative to high fuel costs and to change consumer attitudes. Here, the essay looks at the mistakes committed by American automakers in their response to increasing fuel prices and changing consumer needs. Furthermore, the essay offers alternative strategies for automakers in adapting to changing market demands and developing new strategies.

The mistakes committed by U.S. Automakers

Analysts note that the problems facing the American auto industry now can be traced back to 1973 when the American automakers, as opposed to their European and Asian counterparts, decided to respond to the increasing fuel price by introducing powerful SUVs, pickup trucks, and big minivans, which replaced other small cars from the marketplace. By then, consumers were oblivious of the impact these models could have on their environment, but now things have changed, considering that millions of Americans are aware of the effects of global warming.

Moreover, as mentioned earlier, other international automakers are aware of the need to introduce new technologies such as fuel cells and hybrids to increase the demand for the existing car models. In fact, these new technologies promise to offer immediate and long-term benefits regarding fuel consumption (Strategic Management par. 4). On the other hand, for many years now, the American auto industry has been producing big and luxurious models at the expense of small cars. As a result, other international automakers such as Honda, Toyota, Hyundai, and Daimler-Benz are producing small and fuel-efficient cars that are gaining the preference of most American auto consumers.

However, the scramble to introduce new technologies into the American marketplace at the expense of the all-time famous pickup trucks and SUVs has led to a significant decrease in auto sales as of 2008. Despite that these automakers are following the right course with regard to changing consumer demands relative to increasing costs of oil, they have overlooked the need to address the factors affecting the global oil prices. Here, just like in the 1980s, the automakers have failed to heed the suggestions of most analysts who note that the oil prices are bound to remain high for the longest time ever due to factors associated with both the demand and supply sides. Moreover, studies show that most Americans are cutting down on the number of miles driven, and thus, this has occasioned the $ 4 per gallon gas price. As a result, it is certain that most American drivers have either reached or are headed to a tipping point (Strategic Management par. 6).

Conversely, many American automakers have not learned from past experience regarding the increase in oil prices. Here, it is worth noting that in the 1980s, American automakers were producing powerful fuel guzzlers at a time when gas prices were high. At the same time, these automakers were under stiff competition from their European and Asian counterparts who were producing energy-efficient models into markets that were already experiencing high gas prices compared to the American auto markets.

Certainly, one expects that American automakers having experienced the impact of high oil prices in the past would obviously be more careful with the current market conditions (Strategic Management par. 7). However, since the light trucks were fetching huge profits, it was hard for these automakers to shift from the production of profitable models to newer energy-efficient models that were infamous to most American auto consumers then. Thus, the major mistake committed by American automakers was to rely on short-term high-profit margins from light trucks at the expense of long-term issues regarding changing market demands and increasing oil prices.

The way-forward

Instead of wasting efforts to look at what the American automakers should have done better in the past, most analysts suggest that resources should be directed towards addressing the current market conditions and developing new strategies. Accordingly, market analysts recommend that the way forward for all American automakers is to develop new strategies regarding the production of competitive new technologies, including hybrid engines and hydrogen cars, to avert overdependence on oil and oil products whose prices are causing a stir in most global marketplaces. Certainly, investments in the new technologies should start now so that energy-efficient models are made available in the American auto markets in the next 15-20 years (Strategic Management par. 8).

Conversely, more short-term strategies should be aimed at achieving fuel efficiency for the current models through an incremental approach in order to prepare consumers in moving from consumption of light trucks to purchasing more energy-efficient vehicles. Therefore, instead of closing down on some branches producing light trucks such as SUVs in the hope that consumers will switch to new technologies almost immediately, automakers should instead strategize on different ways of using the available resources to generate more money that will be pumped into designing the new technology vehicles.

And more certainly, the American automakers should see the need to strike partnerships with each other or their international counterparts in sharing various costs implicated in developing new energy-efficient technologies (Strategic Management par. 15). However, analysts warn that consumers should not count on these new technologies as yet because the infrastructural costs involved are very high compared to the financial standing of most automakers.

Conclusion

Oil and oil products form an integral part of almost every economic sector in the world. However, due to various factors regarding the supply and demand for this valuable commodity, the prices of oil have been increasing unexpectedly. In this essay, we have discussed the impact of the high gas prices on the American auto industry relative to the mistakes committed by many automakers in their response to high fuel prices and changing consumer demands. From the foregoing discussions, it is obvious that most American automakers have not learned from their past experience in regard to the high oil prices in the 1980s. And come the year 2008, they are still repeating the same mistakes committed earlier. As a result, it is recommended that these automakers should gradually change from producing fuel guzzlers, which attract huge short-term profits to new technology models, which despite attracting limited profit margins, will result in enormous benefits in the long run.

Work Cited

Strategic Management. Behind the curve: have U.S. automakers built the wrong cars at the wrong time again? Web.

Introduction

The era is known for fast developing consumerism patterns. As the consumption grows, so does the use of resources. Consumption of energy, the all-important resource for production of goods and services, is therefore on the rise. Oil forms a key energy source and it is because of the fast-growing consumerist society that despite a consistent increase in the oil prices over the years, its use has not decreased. Instead the use of oil has kept growing over the years.

In fact, if we take a look at the state of oil prices 20 years back in late nineties, we find a totally different picture. At that time analysts were echoing the dismal state of the economies of the countries whose mainstay was oil exports. The Economist (1998) in a report stated, “The fall in the oil price has stopped for the moment. But these days, oil shocks hurt producers more than consumers”. Can we repeat the same statement now? In fact, now the situation is in sharp contrast; today we are ruing to the fact that crude oil prices are headed to the roof. The oil dependent countries are happy and OPEC appears to have become much more relevant now. BBC (2008) in its recent report state that, “Oil prices have touched fresh highs as traders bet that violence in key producing nations will hurt supply.” This statement in a nutshell summarizes the reasons behind the upward march of the crude oil prices.

Price of any commodity in general is determined by the law of demand and supply. As per this law, ‘all other factors remaining constant, the higher the price of a product, the smaller number of people will demand it. Or in other words, the higher the price, the lower the quantity demanded.’ But if we look at the historical perspective, it is found that oil, the source of energy has also defied this law. The demand for oil continued to increase even when the prices kept increasing. With majority of the share going in favor of Middle-East nations, the oil is not only the source of energy, but in today’s global scenario, it has become an important source of political power as well. There are nations whose economies are badly hit as a result of increased oil bill, but as of now, the geo-political circumstances and the oil majors appear least interested in resolving the problems of such countries.

Oil: The Historical Perspective

If we take a look at the oil prices of the last 50-60 years, we find that till the early 1970s, the prices of crude oil kept hovering around $15-20. But the huge strength of oil was realized by the oil producing nations in 1973, when they all decided to stop exporting oil to US and other western nations, in retaliation to the US assistance to Israel in the Yom Kippur War. Oil prices started moving upward all around the globe as it became a much-desired commodity in the consumerist society in western nations. At that time, the world used to be divided in two blocks with somewhat different political ideologies and differing opinions about the global issues. At that time, to some extent the oil price rise remained subdued because of the mutual influences of the Soviet block and the American block, but the Iranian revolution proved to the real anathema for the world community. It resulted in reducing levels of oil exploration from the Middle East region and thus resulting in sharp rise in oil prices. A realization also dawned upon the US that the ‘oil power’ has to be in control if one needs to have a say on world affairs.

The events thereafter proved more disturbing for the oil rich nations of Middle East. Subsequently we saw the bitterness between Iran and Iraq translating into full fledged war, which further pushed up the oil prices at never before levels. The crude oil prices started touching the levels of $70. After hovering at these levels for couple of years, and as Iran and Iraq started seeing the futility of continuing with the war, the prices started receding. The prices again saw a spurt when Iraq attacked Kuwait and engulfed its oil well into fire in August 1990. But that proved to be a short-lived misadventure of Iraq and oil prices came back to normal levels i.e. $25. Subsequently though, the Organization of Petroleum Exporting Countries (OPEC) had to cut down the daily oil exploration limits in order to contain further fall of oil prices. These developments appear somewhat in line with the law of demand and supply. But, after the era of globalization started firming up its grip on nations around the world, more and more economies started implementing the policies of liberalization.

These developments gained momentum after the disintegration of USSR and USA gaining in stature in world polity. On the one hand the income levels of people started rising, while on the other hand the increasing levels of competition in provisioning of goods and services ensured that the consumer can be persuaded to purchase a car, even if that meant taking a hefty loan from the bank. This tendency led to increase in the consumption of fuel. Therefore, even when the US led forces attacked Iraq or global economy went into recession, the oil consumption levels kept increasing and so did the crude oil prices. OPEC block have so far summarily rejected the calls to hike production levels so that the prices could be brought down, thanks to pure economics. It is at this juncture that the oil consumption seems to defy the law of demand; rise in the prices has not led to slightest decrease in demand, instead it has been increasing day by day.

Effect of Oil Price Rise on General Consumer and Small Businesses

While the oil rich nations and their economies have been relishing the rise in oil prices, it has certainly affected the budget of a general consumer and the resources of a small business. ‘Economics’ is the key driver in carrying along the resources, benefits, and people to people exchanges. The marketing communication techniques resorted to by the companies in persuading the consumer to go for their products prove to be quite inviting in nature. Once the gullible consumer falls into the trap, it starts having an impact on his consumption habits, which obviously reflects on his spending. But the levels of income have also risen sharply over these years. It is true that not everybody is that lucky to have higher levels of earnings, and there are nations, particularly in the developing world, with a large segment of population still living below the poverty lines, but the IT era has also brought in windfall of opportunities for nations like India, which used to be one of the poorest nations. Today, India can very well boast of a record number of millionaires. But all nations cannot be termed as that lucky.

Similarly, the small business owners have also been adversely affected. With opening up of economies, Multinational corporations started going places from one country to another. Since they had a sound financial backing, so they could easily offset the increasing levels of energy consumption. The MNCs rely on penetrating pricing strategies, which implies selling at prices which do not even provide a profit margin. These MNCs would make up for this shortfall, once they establish themselves firmly in the respective regions/ nations. In the meantime, the small business owners are not in a position to sustain the rising levels of energy costs and the decrease in volumes, as they cannot match up with the fiercely competitive pricing strategies of the MNCs.

Such losses coupled with rising energy bills leaves an indelible mark on the prospects of small business owners, which ultimately results in closing down of the venture or ends up being bought by a wealthy MNC. The proponents of Liberalization and globalization claim that globalization has opened up newer vistas of trade and business all around the globe. It is said that opening up of economies has now tilted the balance in favor of market forces, which is helping the consumer by way of providing quality at reasonable prices. But on a closer look, it appears quite clear that while competitive pricing is helping the consumer to some extent, but this advantage is undone, to a great extent, by the compulsive buying, which is a result of aggressive marketing techniques of MNCs. Similarly, the increasing role of marketing principles in determining the policies of governments has left to smaller and marginal businessman at the mercy of the market forces, which are clearly not in favor of them.

Introduction

This paper provides an analysis of current gasoline (Gas) prices. The study also gives reasons for why gas prices are so high, types of gas available, and regions where gas is produced.

Gas Prices in Different Countries

According to a report by CNN, Gas prices vary across different countries. Some countries, such as Saudi Arabia, Venezuela, and others that have vast deposits of crude oil, keep the local Gas prices low so that their people are benefited. In Saudi Arabia, the cost of regular Gas per gallon is 0.091 USD, while in Venezuela, it is 0.012 USD per gallon. Netherlands has the highest price of 6.48 USD per gallon (CNN Money, 2007).

Table 1. Gas Prices in different countries (CNN Money, 2007)

In America, there is a wide disparity between gas prices across different states and regions within the state. In San Francisco, the gas prices vary between 3.60 to 3.70 USD per gallon, while in New York, the prices are between 2.70 to 2.80 USD per gallon. The average gas price in the US is placed at 3.061 USD per gallon. (USA Gas Prices, 2007).

Table 2. Ten States with the Lowest Prices (Gas Buddy, 2007)

Break up of Gas Prices to Consumers

There are three grades of gas available, and they are premium, mid-grade and regular, and these are classified as per the Octane content. The prices of gas vary even by gas stations in the same block. This is due to the procurement and taxes that are levied at different levels. Other reasons are the competition levels, traffic patterns, rentals, real estate value, and other factors. While there is no harm if the gas stations bring down the prices to a very low level, they cannot go lower beyond a limit since this would affect their profitability. There are a number of taxes and other pricing structures that influence the price of gas. Gas is produced from crude oil, which is refined to produce the product used in automobiles. Assuming that a gallon of gas costs 1USD, then the price of crude is 53 cents or 53 percent of the total cost. Federal and state taxes add about 19 cents or 19 percent to the cost. Next, there are refining costs and profits, and these add another 19 cents off 19 percent. Next comes the distribution and marketing costs that add about 9 cents or 9 percent of the costs. The total is then 1 USD. It can be seen that the value-added costs are almost as much as the cost of the raw product. This is one of the reasons why gas prices are so high. Ultimately, the price of gas at the pump is determined by the price of crude oil, federal and state taxes, costs of transporting in trucks and pipelines, and the desire of the owner to maximize the profits. The actual price will depend on where the pump is located if there are any other gas stations nearby, and so on (Primer on Gasoline Prices, 2007).

Reasons for Gas Price Fluctuations

The reason for Gas price variation is based on a number of political, economic, and financial factors. The world’s largest producer of crude oil is Saudi Arabia and the OPEC (Organization of Petroleum Exporting Countries), Nigeria, and Venezuela. There are other countries such as the USA, India, and others, but the volume of oil produced is not sufficient to meet their own demands. So, in effect, the price of Crude oil is set by Saudi Arabia and OPEC. There have been many instances where these countries produce less oil so that the demand for crude oil goes up, and consequently, the price of gas rises. In some instances, these countries maintain a steady rate of crude production so that the rates remain stable (Gismatullin Eduard, June 11, 2007).

In addition, the prices vary due to seasonal demands and other reasons such as the distance from the supply points, possible disruptions in the supply, a disaster such as a hurricane Katrina, competition among the gas stations that may bring down the gas prices by a few cents and so on. Some states have special environmental regulations about the additives used in gas. State regulations require that Gas must produce lesser carbon monoxide and sulphur, must be oxygenated, must evaporate more slowly, and so on. These add to the cost of the gas (Why do gasoline prices differ according to the region? 2007).

Another factor for variations in gas prices is the quality of crude oil. The amount of processing and the by-products of the crude oil vary from region to region. Crude oil produced in America is a light quality oil that can be refined with a simple refining process. The crude oil obtained from Saudi Arabia has high sulphur and other content that requires special processes (Crude Oil Quality, 2007).

About OPEC

OPEC or the Organization of Petroleum Exporting Countries include a number of countries such as Saudi Arabia, Iran, Algeria, Iraq, Indonesia, Venezuela. Kuwait, Nigeria, Libya, Qatar, and the United Arab Emirates. These countries control the output of crude oil, and the current prices are 65.40 USD per barrel. The countries have an understanding of the rest of the world and have agreed to produce 1.7 million barrels per day. A price rise of just a few cents can create a huge burden on other countries since they buy millions of barrels. Recent incidents in Nigeria where militants have attacked the oil production centers have reduced the supply of crude oil by as much as 600,000 barrels per day, and this has made the crude oil price rise to 69.06 USD per barrel (OPEC, 2007).

References

1. CNN Money, 2007, Gas prices around the world. Web.
2. Crude Oil Quality, 2007, Refining of Crude Oil. Web.
3. Gismatullin Eduard, 2007, Oil Rises as Saudi Arabia Maintains Supply Restrictions to Asia. Web.
4. Gas Buddy, 2007, Gas Prices by State/Province: 10 Lowest By State. Web.
5. OPEC, 2007, OPEC Price Band.
6. Primer on Gasoline Prices, 2007, What are the components of the retail price of gasoline. Web.
7. USA Gas Prices, 2007, USA National Gas Temperature Map. Web.
8. Why do gasoline prices differ according to region? 2007. Web.

Gas prices are growing every day, filling the minds of Americans with confusion and anxiety, as prices reached the $4 per gallon mark. However, analysts predict that the staggering growth will continue. Patrick De Haan, head of GasBuddy’s petroleum analysis, warns that all-time gas price records will be set soon. “Forget the $4 per gallon mark, the nation will soon set new all-time record highs and we could push closer to a national average of $4.50/gal. California could be heading for $5.50 per gallon with more stations charging $6 and beyond,” said De Haan. How does the Ukrainian crisis take a heavy toll on the warring countries and the distant United States alike? Our guest explains how the war in Ukraine impacts the gas prices in the U.S. and why Americans should prepare for the worse turn of events.

De Haan is an expert in matters related to historical pricing, predictive models, analysis, and forecasts in the oil and gas industry. At GasBuddy, he provides millions of Americans with relevant information and professional commentaries on gas price fluctuations. The correlation between Russian military intervention in Ukraine and such a significant spike in gas prices may be unclear to the U.S. public. After all, in 2021, the U.S. imported only about 8% of all U.S. oil imports from Russia. So, why do sanctions imposed as an answer to the military aggression of a relatively small oil supplier causes such a difference? De Haan explains: “We’ve never been in this situation before, with this level of uncertainty. As we lose a major global producer under the weight of deserving bipartisan sanctions for invading a sovereign country, the cost is high.”

So, gas prices keep rising because of global impact and unprecedented uncertainty. De Haan says: “We don’t import a lot, but somebody else does and we are making it difficult for Russian oil to flow to the global market, and prices are reacting to that.” The U.S. may cover the loss of Russian imports by pumping more oil or finding alternative suppliers. However, any reduction in global oil supply drives the prices in American gas stations higher. Economic sanctions are a double-edged sword — they cripple Russia and undermine its war machine but may also cause unpredictable, erratic counteractions from Putin’s regime. The potential alternative suppliers may also use an opportunity to squeeze concessions from the U.S. Any negotiations will likely take time, and the gas prices will stay high.

In summary, American car owners are literally paying to defend freedom in the globalized world. The relatively small volumes of oil imports from Russia do not matter much. We can compare the whole situation to a devastating earthquake. War in Ukraine and the U.S. sanctions against the Russian oil industry are the epicenter, and the skyrocketing gas prices are the aftershock. The situation has no swift solution, and any developments may lead to unexpected consequences. The only prediction that can be made with confidence — Americans should not expect improvements in the nearest time.

Introduction

US gasoline prices are steadily rising up. The fast-rising began in March this year and rose up to 40 cents per gallon for the last 6 weeks. Americans spent over 26 billion dollars more just on gasoline during the first 9 months of the 2004 year, than was spent the year before, in the same period of time. According to Energy Department, this is a 16 percent increase.

The United States is the second world producer of gas after Russia. Almost 85 percent of the gas comes from domestic wells.

Main body

It is interesting, that some of the reasons for the gas price boost are uniquely American. So what are they? The problem is that in 2005, many of the numerous petroleum companies announced that they want to remove methyl tertiary-butyl or shortened MTBE from their gasoline. Companies are saying that such a decision was driven by State bans because of water contamination problems. So now they have to make a rapid change from methyl tertiary-butyl to ethanol, which will cost more money for a normal consumer.

The other reason is inflation. For the last couple of years, the dollar became weaker on the world markets. How can this affect gas prices? Gas is priced in dollars. Whenever the dollar is becoming cheaper, then other currencies are becoming stronger. So for example, if a gallon of gas costs 10 dollars and 8 euros, and the dollar becomes cheaper, then automatically euro will cost 10 percent more. So basically, you will need 7.2 euros to buy a gallon. As foreigners buy more gas, the demand is rising, and it automatically rises up the price in dollars. So in the US, it seems that the price is going up quite rapidly, while in other countries, mostly Europe and Asia the price is not going up that often or even stays the same. Also as people becoming more worried about inflation, they start to invest more money in oil, which is boosting up the demand and prices. So as a result we may state that inflation is indirectly affecting the gas price, by rising it up.

Conclusion

Another reason and I think the most important one, is that gas is naturally a non-renewable fossil. It is extracted from the ground for more than a century. For the last year drilling of natural gas increased by about 25 percent. The conservations of this fossil are slowly disappearing. And according to the law of business, the less amount of product can be provided – the more it will cost. According to this theory, gas prices will never go down, but instead, they will keep rising up every year.

Chicago city is the biggest city in Illinois state in terms of size and population. Since last year the city has been experiencing the problem of mounting gas prices that have affected the inhabitants.

The unleaded gasoline average prices seem to have a trend of rising since last year compared to other cities in the USA. The increasing rate of the oil prices is rising at a higher rate where the price per gallon is currently above $4 while in other cities the price is below these prices.

The main origin of this problem is the OPEC’s frequent increase of the oil prices and reducing the amount of oil drilled creating a worldwide shortage of gasoline due to their imposed quotas.

More so, the price of crude oil and the refining costs are on the increase hence affecting the price of gasoline. Consequently, the federal and state gasoline taxes have been on the rise thereby increasing the price of oil.

The major effects include the rising standard of living as the manufacturing companies have passed the high cost of production to the consumers caused by high fuel prices because the high prices tend to diminish their profits; hence food commodities have become expensive.

As Bruce Bullock says “The consumer doesn’t have much choice in the short term, Right now, you might not see that impact because they don’t have a lot of choices.”

In addition, many people have opted to use other means of transport with the number rising by 10% such as the metro trains that have become cheaper compared to road transport.

For instance, Dr. Michaela Winchatz, Assistant Professor, DePaul, Communication commented “I used to be able to fill my tank at around $25 — now it’s costing me $40. So, for a trip to Illinois, it’s going on $25-30 extra each time……. Now, the train is definitely cheaper.”

Many people have complained of the high gasoline prices with many changing their summer plans but others stick to their prices especially the high paid class.

Sam Angarone, Senior, Commerce argues that “I would relate gasoline as an ‘inelastic’ demand… I do not plan on changing any plans based on gas prices; in fact, I and some friends are going on a 3-week long camping trip this summer, driving to national parks through Canada and the Rocky Mountains in the US.”

The trend of the rising unleaded gasoline average prices in Chicago compared to the whole of the united prices is shown below:

Time period Chicago USA

Today 4.183 3.897

Yesterday 4.181 3.885

One Week Ago 4.074 3.788

One Month Ago 3.787 3.560

One Year Ago 3.678 3.230

The trend of unleaded gasoline has been on the increase in Chicago at a higher than the average rise in prices in the USA. This is supported by Communication Professor, Dr. Bruce Evensen who says:

“But it’s hard to see my fill-up crash through the $40 barrier and reach for even loftier heights. So I stop pumping before I get there, and my fill-ups are the same price as they’ve long been, about $35 or $37 a fill-up. The only problem is I’m not filling up.”

There are various elements that affect the price of the gasoline in Chicago as represented in percentages below: the price of the crude oil constitutes 45% of the gasoline price, the federal and state taxes related to gas contributes around 25% of the price while the refining, distribution and the marketing costs constitute approximately 22% and 10% respectively.

According to Jonathan Perman, executive director of the Evanston Chamber of Commerce; the rise in gasoline prices has been due to the OPEC imposition of the crude oil production quotas that have to demand exceeding supply worldwide.

In addition, He believes that the cut in sales tax and the subsidizing of the gasoline cost to save the manufacturers and consumers has very little effect as the problem is international hence local solutions will not be effective.

References

John V. Mitchell. A New Era for Oil Prices, London: Associate Fellow Chatham House, 2006.

Heinberg, R. The Party’s Over: Oil, War, and the Fate of Industrial Societies, London: New Society Publishers, 2003.

Chicago gas prices. 2008. Web.

California residents’ budgets are greatly affected by the rising gas prices. According to the research, California gas prices remain the highest in the nation (Brady, 2022). The addition of gas stations makes going to work far away from paying for other needs of low and middle-income working people. While some workers can use public transportation to work, many do not. As a result, employees need support from business leaders, but with no end to rising costs, they may need to think outside the box of inexpensive or no-cost ways to get employees to work without breaking the bank.

Some of the assistance that I would offer as an employer will result in additional taxable income for employees, while others will open doors to relationships within the company. It requires planning and predicting when and where the market will change. “For some companies, a temporary bump in salary or an additional gas allowance per week can ease the burden.” (HR Headaches: How to Assist Employees Who Need Help Due to Gas Price Increases, 2022). I plan to do this as an employer since offering all employees cash benefits, or salary increments is a good idea. Considering that gas prices have doubled in some areas, I would allow employees to work from home half the time, offsetting the additional costs they would have spent on their way to job places.

There are various measures that the government of California can put forward to ease the residents economically during the rise of gas. The government should enforce the use of speed governors in vehicles to prevent aggressive driving. Driving less aggressively reduces fuel costs; not speeding and not accelerating reduces fuel consumption, and the driver will be safer while driving. The government should also encourage the production of lighter cars from factories since they require less fuel consumption to produce driving power (Hammond, 2020).

The government should also expand eligibility and increase the amount of the grant offered by the Gas Assistance Fund to help residents to pay their natural gas bills. The government should introduce gas tax relief and inflation relief. When the above is actualized, the residents will have financial relief during gas prices rise.

References

Brady, S. (2022). California Residents Receiving Stimulus Payments Starting Oct. 7. Forbes Advisor. Web.

Hammond, L. A. (2020). Cars that are lighter, faster and more fuel-efficienct. Driving the Nation. Web.

HR Headaches: How to Assist Employees Who Need Help Due to Gas Price Increases. (2022). Workest. Web.

As one of the direct materials used in the production of petroleum products, the cost of crude oil eventually affects the price of gas price. Therefore, in decision making, the management accountant has to convert the expenses, and operating costs are put as a variable, or fixed. In order for the conversion to be reliable and perfect, the management accountant has to employ a deep knowledge of the theory of cost behavior. Therefore, the paper presents an analysis of the ways in which crude oil affects gas prices in Canada.

Using the theory of cost behavior, the management accountant underscores that sometimes, the price fluctuations of crude oil are complex (Drury, 2008). In essence, some of the assumptions in the price changes are invalid, making the data for the cost variables to be of no use. In this case, the faulty operating cost leads to wrong information, and when such data is used in decision making, then, the overall outcome might not yield the intended outcome. This indicates that measuring and recognizing the cost behavior of crude oil is essential in determining the prices of gas in the country (Williamson, 2008).

Notably, an increase in the volume of crude oil has an impact on the presumed variable costs, because the cost changes with a corresponding increase in the volume of production. However, determining this variation makes the work of management accountants complicated and time consuming (Drury, 2008). In reality, when one considers the economic theory, specifically cost variable and its application in management accounting, determining the volume of production and the variable cost is done through assumption. This indicates that there is no specific accounting measure that the management accountants could apply to arrive at the truth in the financial statement (Horngren et al., 2011).

Assuming the production of crude oil increases at the rate of 100 units, there would be a corresponding increase in the total cost of the material. This relationship is fixed and assumes that the increase in production always results in a rise (Horngren et al., 2011). However, there are variable costs, which arise and might affect the total price of the material. Therefore, in management accounting,

TVC = V (Q)

Where:

• TVC is the total variable cost.
• V is the variable cost rate.
• Q is the unit quantity manufactured or sold.

From this kind of relationship, the management accountant would agree that the volume of production and cost of crude oil would have an effect on the prices of gas, for domestic and industrial use. Essentially, the by-products of crude oil including paraffin, petrol, and diesel can be used to supplement the use of the gas domestic and industrial setup (Williamson, 2008). For example, in Canada, an increase in the volume of crude oil production increases the supply quantity of petrol, diesel, and paraffin to the market. In this case, the total variable cost also increases since it is directly proportional to the supply quantity and the variable cost rate. In fact, petrol and diesel could supplement the use of gas in the industrial production system.

For example, the of activities Exxon Mobil Corporation, including high or low production, lead to notable fluctuation in the prices of gas. Since the company forms the benchmark in the world’s energy production, its activities are expected to continue and the shares are projected to increase in demand. Therefore, the anticipated increase in oil production of the company, despite imminent market fluctuations, would automatically increase gas prices. However, the company is still in its best position to deliver on the global energy needs, which is growing in a steady way. The Chairperson of the company argues that the company could manipulate the economic challenges to deliver the needed energy for global economic development.

In summary, the availability of crude oil and its by-products increases its industrial use and reduces the demand for gas, thereby, reducing the latter’s market price. Alternatively, the low supply of crude oil and its by-products increases the demand for the gas for industrial use, thus, increasing its market price.

References

Drury, C. (2008). Management and Cost Accounting. Canada: Pat Band Publishers.

Horngren, C. T., et al., (2011). Cost Accounting-A Managerial Emphasis. Canada: Pearson Education.

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The United States recently saw a significant increase in retail gasoline prices. According to the official data, the previous decline was conditional upon the response to the pandemic, which caused lower demand as well as low crude oil costs combined with critical supply constraints (“The Week in Petroleum”). Therefore, this event positively correlates with the efficiency of measures implemented against COVID-19 and the elimination of travel restrictions.

The comparison of indicators before the spread of COVID-19 and over the following year shows the dependency of supply and demand on external factors. Thus, the former shifting indicators were affected by cold weather outages throughout the country, which was followed by rising imports, whereas the latter was determined by the low mobility of citizens (“The Week in Petroleum”). In this way, the environment was the principal aspect, which allowed for predicting changes in this field.

At present, the ongoing recovery defines the gas prices in the United States, which are gradually increasing. By now, regular retail rates were reported to be on average 92 cents higher compared to the previous year (“The Week in Petroleum”). This tendency also corresponds to the considerations of evolving supply and demand, which fluctuate depending on seasons or regions (“The Week in Petroleum”). Therefore, the decline in inventories alongside the increasing mobility of people allows for predicting further growth of these indicators.

In conclusion, the described trends in gasoline prices are aligned with changes in demand and supply. Due to the pandemic, the presence of large inventories and unfavorable conditions for their realization was combined with travel restrictions. As a result, the retail rates were low, and a dramatic change happened as soon as the latter barriers were lifted. Thus, the consideration of profits alongside the growing needs of people in gasoline confirms new patterns of price formation in the United States in the long run.

Work Cited

“The Week in Petroleum.” The U.S. Energy Information Administration. 2021. Web.

In the recent past, there has always been news or reports on the rising gas and oil prices. In the recent past, prices have risen from a little over a dollar per gallon to at least $3.47 per gallon. This is according to Forbes (2008), a congressman of the Virginia fourth congressional district.

There have been reports that this trend would continue for some time even to a price of 30 more cents per gallon. These increases in prices have been an issue since they have been straining most of the families’ budgets. Forbes says that he has been receiving emails and letters from his constituents regarding the issue seeking to know why the prices are rising at that rate.

If this situation continues for a while, it could have much effect on the world’s economy as it would impact strongly on the families and businesses as well. The following paper seeks to find out the effects of these fluctuating prices on the environment and the economy and the effects of going green with/without the oil and gas.

According to Forbes (2008), the rising gas prices in the past couple of years could have been caused by several factors that have had individual pressure on the energy system.

They either influence the price of crude oil or production and marketing of gasoline and the interaction of these in a single market affect the overall gas prices. Some of them include; crude oil prices – their prices are determined by the demand and supply in the world.

The OPEC countries are the determining factors since they decide on what to produce and export. This means that the more they produce, the less the prices will be. However, due to the fact that oil is traded in the world market, whatever happens on the ground in these countries could greatly have an effect on the amount of oil produced at a particular time of the year.

Some example of such events that have affected oil prices in the past include; the OPEC cartel decided to raise production quotas despite the fact that they had previously reduce them in the year 2002. The increasing population in china, India and developing worlds has seen most of the people in these countries have access to automobiles hence increasing the demand for gas and oil in these countries.

There have been disruptions in countries that produce a lot of oil like Nigeria and Venezuela. Another reason for the increased oil/gas prices is the refinery imbalances – the rising economic growth in the US has created some imbalances in the refining industries since the demand for gasoline is increasing daily and with the declining refining capacity, a lot of constraint has been put on the available oil forcing them to increase prices.

Seasonal changes are another factor that has caused the fluctuating gasoline prices. This relates to the time of the year and in this case, gas prices are higher during summer and holiday seasons as many people in America are traveling and hence the demand is high.

Forbes (2008) explains that not only crude oil production that impacts on the fluctuating prices rather there are factors such as environmental programs, competition in the local market and proximity of supply. In this case, people living in areas far from the Gulf Coast which is the area where gasoline is produced are likely to pay higher prices since the total price will cover the transportation expenses.

Prices also vary according to the competition in a particular area. For instance, the rural areas might experience higher prices since there are not many stations offering such services and on the other hand, those areas with several stations will have fairer prices due to competition.

According to Forbes (2008), the increasing prices have had impact in various sectors in the US. In farming, farmers use energy in processes like fertilization, and due to the increased prices in energy, they have been forced to cut down the amount of produce in a year. This in turn has increased the prices in the amount of food stuff and burden is left on the consumers. Reports by US department of Agriculture said that between 2000 and 2005, the fuel cost on farming rose by 10%.

In manufacturing, manufacturers are also not left out as the increased cost on energy used to produce goods forces them to increase the prices of the goods produced and at times they are forced to lower their workers’ salaries. This in turn puts pressure on consumers and workers and strains the economy. The tourism department has also been affected since airlines and bus lines need fuel for them to be fully operational.

Some families have been forced to cut short or reduce their travel due to the increased oil prices and due to this, cities that highly depend on tourism have had heir economy affected. Other than the overall economic effect, individuals have also felt a pinch as they are forced to readjust their budgets to pay for the high prices (Forbes, 2008).

There are many man-made machines that rely on oil and gas such as air crafts, motor vehicles and many other industrial machines for them to function. Much as they are useful, they also have some consequences that are experienced by both human beings and the environment at large.

For instance, coal and oil have molecules that have byproducts of carbon, nitrogen and sulfur when they are burnt. Apart from this, they also produce some form of particles that do not burn and hence released to the environment and cause pollution (NaruralGas.org, 2004). The environmental issue that has been on discussion currently, the green house effect, is due to the high levels of gases that are being emitted by these green houses.

Naturally, there are gases in the environment that regulate the amount of heat that is emitted on the atmosphere. Researches show that increased emission of green house gases could lead to high temperatures on the earth surface and eventually have disastrous effects on the environment. Motor vehicle and aircraft emissions, paints and emissions from industries contribute to smog which is a product of carbon monoxide, nitrogen oxides and heat from the sun.

When these products combine, they form a smoggy layer on the environment and can also cause respiratory problems such as lung damages if inhaled by both human beings and animals. Chemicals such as sulfur and nitrogen dioxides react with water vapor to form acid rain which also pollutes the environment, damages crops and causes respiratory illnesses in human beings (NaruralGas.org, 2004).

Apart from being environmental pollutants, gas/oils have several benefits. For instance, natural gas is the cleanest fuel since its combustion process produces little byproducts that may pollute the environment. It does not leave any soot or odors and if inhaled in small amounts, it does not affect human beings.

Natural gas is also economical since it is piped directly to the consumer and the system is not easily affected by weather changes hence enhancing safety. When using gas and oil, they are easy to transport hence quite efficient. Oil extraction, refining and selling has also created jobs for many people in the producing countries and also improved the economy of the country though exports.

Going green is a term that has been in use currently referring to the methods in our daily lives that can be used to help save the environment. According to Save the World (2009), green living entails reduction in the use of oil based energy and using only organic and chemical free products.

One can also decide to go green at home by applying healthy farming practices through the use of organic and chemical free farm products. It also means people trying to save water by always turning off taps after use and switching off lights when they are not needed. Some people are also trying to save the world by deciding to use bicycle or walk on foot for the short distances instead of using vehicles that use a lot of gas and oils while emitting harmful gases on the environment (Save the World, 2009).

All these practices are aimed at saving the environment and creating a healthier earth and in turn reduce diseases and provide healthy individuals who will be involved in developing the world. However, this move does not come without its negative effects as well. McRae (n.d) argues that as much as we are trying to save the world by using organic products, it is quite clear that such products are quite expensive than traditional ones.

This also applies to the hybrid vehicles and use of solar panels which seem to be quite expensive. In this world where all are not equal, not every one is in a position to purchases such products and this means that if they can’t afford the big changes; they may not be part of the change at all. Use of fluorescent bulbs is said to save energy as they last longer and use less energy.

However, there is evidence that they contain mercury and if no properly disposed, they could contaminate soil or water. Therefore, they must be recycled and this means that one has to store the used bulbs until they are collected by people concerned (McRae, n.d).

In conclusion the fluctuating oil and gas prices have had an impact on the economy ranging from tourism, manufacturing and farming. At the same time, use of these products in our daily live helps us a great deal as they speed up our operations in various operations.

However, they also have negative impacts as they pollute the environment through emission of gases and particles and thus causing disease. This leads to use of a lot of money for treatment purpose and as such it means that unless we try to devise ways of reducing these effects, the little we get from our businesses will always be used to offset hospital bills.

Going green is a strategy being adopted by many in the world to help save the planet by reducing the use of oil based energy and organic products. Much as it is a good way of conserving our environment, it has its own disadvantages which must be looked into such as the expenses which of course are not affordable to all.

Reference List

McRae, S. Negative Effects of Going Green. Web.

Save The World. (2009). Going Green: What Does Going Green Mean? Web.

Forbes, R. J. (2008). FAQs: Gas Prices. Web.

NaturalGas. (2004). Natural Gas and the Environment. Web.