Category: Gasoline Prices

Introduction

One of the most significant factors which affect the economy of the US and the world in general is its overdependence on oil. Literary the US economy over depends on oil to power its progress. This has made the economy to be very vulnerable to slight changes in the price of the oil. In this article, a close examination of this vulnerability of the US economy to changes in the prices of oil will be examined with an aim of determining whether the price of gasoline will keep on rising.

Supply of Gasoline

The principle factor that affects the price of gasoline is its supply. The world supply of oil is continuously being strained as the demand for more supply keeps on increasing. New emerging economies such as China and India are demanding for more and more oil to power their economies. This ever increasing demand for oil directly affect the economy of the US as forces of demand and supply push the price of the oil upwards. During times of crisis especially when an oil producing country is involved, such as the current one involving Libya, the price of oil goes up affecting the economies which have a heavy reliance on oil and oil products.

Will Gasoline price keep on rising?

On the question of whether the price of gasoline in the US will keep on going higher the answer is yes. There are many indicators which show that the possibility of the price of gasoline rising high is very high. Basically, as noted above, the price of oil is headed to keep on rising by the simple fact that its demand is more than the supply.

Taking into consideration the fact that coming up with alternative means of energy such as using nuclear plants to generate power will likely take a lot of time the supply, in the meantime, will not sustain demand thus meaning that price will likely keep on rising.

Another factor to put into consideration is overdependence of the US economy on oil and gasoline. It has been noted that that the manufacturers in the US do not seem to understand the crisis of energy supply, for instance, it has been noted that even after the 1979-1980 oil crisis, car manufacturers by 1989 were producing cars which guzzled oil:

Cars were getting faster, more powerful, more laden with gadgetry  and gulping more fuel. Americans had evidently decided that a new crisis wasnt going to happen. The popularity of light trucks, notably sport-utility vehicles and pickup trucks, grew quickly in the late 1980s when Fords F-150 pickup became the best-selling vehicle in America, and trendy was spelled S-U-V. (Consumer 1)

Critically analyzing the oil price trend in the US, it can be shown that it has been on a continuously upward movement: Oil prices have almost quadrupled since the beginning of 2002. For an oil-importing country like the U.S., this has substantially increased the cost of petroleum imports (Stewart 1). It has been argued that the actual price of $3.00 is not the real price as that price is heavily subsidized by the government to enable US oil companies remain competitive. It has been noted that:

The federal government subsidizes the oil industry with numerous tax breaks and government protection programs worth billions of dollars annually. These benefits are designed to ensure that domestic oil companies can compete with international producers and that gasoline remains cheap for American consumers. (IAGS 1)

It can argued that as long as the US has not developed a reliable alternate source of energy thus continuously keep on depending on oil, then the price of gasoline will keep on rising (Feldstein 1). It has been noted that over the past thirty years a lot of money has been transferred to the oil producing countries thus making a huge deficit in the US economy:

The Department of Energy estimates that each $1 billion of trade deficit costs America 27,000 jobs. Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment. (IAGS 1)

The argument above shows that the cost of oil particularly to the US economy is even higher than it seems to be. There are hidden costs such as, the cost of securing our access to Middle East oil  deploying U.S. forces in the Persian Gulf, patrolling its water and supplying military assistance to Middle East countries  is estimated at $50 billion per year (IAGS 1).

It should be taken into consideration that the US is not in good terms with the Middle East where it obtains a significant portion of its crude oil. For the nation to continuously ensure its supply of oil, there are some as discussed above which will continue to be incurred thus placing the economy at a precariously vulnerable position.

Conclusion

The price of crude oil has continuously been rising. The US economy has a heavy reliance on the crude oil and as seen above this place the economy in a vulnerable position. A lot of funds are used to access oil from the oil producing countries making cost of oil to be quite high.

There is a likelihood that the price of oil will keep on rising if an alternate source of energy is not found. Since gasoline is directly obtained from crude oil that means as the price of crude oil keeps on increasing, the price of gasoline will equally increase.

Works Cited

Consumer. How to Buy a Fuel Efficient Car. How Stuff Works, 2011. Web.

Feldstein, Martin. Oil Dependence. National Bureau of Economic Research, 2011. Web.

IAGS. How much are we paying for a gallon of gas? Institute for the Analysis for Global Security, 2006. Web.

Stewart, Hale. Why the U.S. Oil Dependence is Bad for the U.S. Economy. HuffPost Business, 2007. Web.

Introduction

The influence of Mugabe’s scare tactics which he was conducting against the Zimbabweans is soon fading and in the absence of the customary intimidation of the people by war veterans and youth militia who have been brainwashed by the government, the climate of terror which has made president Mugabe to remain in power and control of Zimbabwe for so long seems to fade away with every passing day. For the first time in twenty-eight years of vile and reckless rule of Zimbabwe by Robert Mugabe, it looks as if he may lose in the run-off elections after all, this however is only speculation. Mr. Mugabe has rigged many of the elections and has ruined the country to a pathetic state in all ways including economically and politically. Mugabe has ruthless, delusional fanaticism of a man who is very much afraid of being ruled by others and afraid of being tried for the many abuses he has conducted against human rights.

Main body

According to (CIA), the inflation rate in Zimbabwe has been running for more 100,000% each year for some time now. The black market exchange rate is now almost ten times compared to the official one as most of its economy has become informal as most of the people are in the informal business sector. Zimbabwe’s economy is already becoming dollarized and any reformation which can be done would start with fiscal stabilization, let the new currency to float down to unofficial rate and change it to a more solid currency and halt the furious printing of money which has been going on, (The Economist 2008).

Even if Mr. Mugabe stepped down and leave the seat to one of his fellow vicious and corrupt villains, the western countries would waste their time to go and extend their kindness because the money would not go to the wretched Zimbabweans but it would be used up by the fat cats who have plundered the country to its current dispensable state.

There was a long delay in the announcement of the elections because as the election official said, four elections; local council, house of assembly, the senate and for presidency were held on the same day. The results showed that the president with the Zanu-PF party had lost its majority for the first time since independence with 97 seats against the 99 seats of MDC party of Morgan Tsvangirai in the total of 210 seats of the chamber.(BBC news 2008).

However even though the presidents party is losing its hold on power, the president is still a very powerful institution in Zimbabwe such that he can veto any legislation which may be passed by parliament and in some instances he can go to an extent of ruling by decree. This therefore means that even if MDC is the parliament victor, the president would be weakened but remain a powerful figure in the country.

Tsvangirai who was a former trade union leader claimed that he had won an outright majority and did not see the need for a re-run as he said that the delay in the announcement of the poll results was so as to finagle the outcome by the government. The opposition leader then flown from the country to seek support from other regional leaders before returning to the country.

Key stakeholders

There are various key stakeholders of the Zimbabwe elections, this ranges from the voters, candidates, nongovernmental organizations, government bodies to the international organizations which are concern with elections. The voters in the elections included the citizens of Zimbabwe, they were involved in the voting process and although there were those who were intimidated by the government and its officials, they were able to vote for their candidates with ease although it now seems that they will not have much freedom during the run-off set for June. There were various candidates who were vying for the various seats in the country, this included the presidential seat, house of assembly, local council and the senate. The presidential candidate included the president Robert Mugabe who was running on the ZANU-PF ticket and has been ruling the country for almost three decades. Morgan Tsvangirai who was running on the Movement for Democratic Change (MDC) ticket is the major opposition leader in the country and was a former trade unionist. Morgan Tsvangirai was beaten up and his skull broken by the police in the past year as he carried out one of his rallies in the country as one of the ways to intimidate him and make him to give up his position. The final opposition candidate was Simba Makoni who had been an insider in the Mugabe’s government as he was one of his ministers and many would love to see him rule the country (EISA 2008). All these are stakeholders on the basis of authority. Other stakeholders who are affiliated on the basis of expertise are such as Zimbabwe Electoral Commission (ZEC) which is meant to organize the election and ensure that there is peace and the elections runs smoothly. EISA delegation which is a regional election observer and was used to harmonize the elections in Zimbabwe. It was composed of 25 members who were taken from the civil society organizations, electro commissions and the academic institutions which are in the SADC countries such as Lesotho, Democratic Republic of Congo, Malawi, Sounth Africa, Zambia and Tanzania.

The Zimbabwe Election Support Network (ZESN) observed the pre-election period of the elections which were scheduled for March. ZESN deployed and trained 120 observers on long term basis and the people were deployed were meant to monitor all the elections related events in all the existing parliamentary constituencies which are 120 in number. The NGOs who were stakeholders in the Zimbabwe elections were such as the Civil society organizations which were trying to improve the elections participation. Organizations such as the Catholic Commission for Justice and Peace (CCJP) and the Civic Education Network Trust (CIVNET) were very active. The CCJC was carrying out a peace building mission while CIVNET was talking about the important for participation in the elections (ZESN 2007).

Future for Zimbabwe

The runoff election between the president Robert Mugabe who has now run the country for almost three decades and Morgan Tsvangirai the opposition leader has been set to be on June 27 of this year as announced by the Zimbabwe election commission (Bearak, Dugger, 2008).

There are many things which seems to favor Tsvangirai in the rerun; one is that he had most votes in the March 29^th elections and Mugabe critics who previously saw him invulnerable to defeat now feel that he is ready to fall. However, those who were in support for the opposition leader Tsvangirai and voted for him in the previous elections are afraid to do it again during the re-run. Due to this, it is almost clear that the rerun will probably not be free and fair as the MDC structures have been systematically targeted especially the rural areas which have switched away from the president to the opposition. On the other side, the government has denied all this saying that opposition was to blame for the killings and fights which were taking place, (Gelder, 2008).

The future of Zimbabwe now looks glim, there is a probability that Tsvangirai starts favorite since he gained most of the votes in the elections but the president who has been in power since 1980 cannot imagine Zimbabwe having another leader. Mugabe has now lost his invincibility and this has led to more people voting against him and it is still not clear who the people who voted for the independent candidate Simba Makoni will vote for in the run-off. However, there is a possibility that they will vote for the opposition since it is obvious that they voted for him so as to have a change of power. Those who voted for him in the presidential contest were a breakaway MDC faction which has since then reunited with Mr. Tsvangirai therefore they are likely to vote for Tsvangirai. The only thing that may affect their voting however is the violence by the government and it may affect the outcome of the run-off results.

Conclusion

In conclusion, there is a likelihood that the western countries will not much since they do not have a direct influence on President Mugabe who on the other side says that he is a victim of a plot by the west led by the Zimbabwe former colonial power Britain. Although South Africa is the chief mediator, the MDC says that the president is lenient on Mr. Mugabe and they therefore want it removed or replaced by another country. However, there is a lot of criticism of Mugabe from south Africa which includes the ANC president Jacob Zuma and South Africa mediation was behind publication of the results of the presidency in the individual polling stations and therefore made it impossible for the polls to be rigged.

References

BBC news, (2008), Zimbabwe election recount delayed.

BBC news, (2008), Zimbabwe elections, Web.

Bearak, B. & Dugger, C.W. (2008), Zimbabwe Election Runoff Set for June 27, New York Times.

CIA – The World Factbook – Burma, CIA, 2008.

EISA, 2008, interim statement, Web.

Gelder, E. (2008), Zimbabwe, inter press service, Johannesburg.

The Economist, (2008), Time for the rescue.

Zimbabwe Election Support Network (ZESN), 2007, pre-election update No.1.

The economical processes in the modern world are very complicated and the problems which appear in the powerful countries come through the whole planet. The same deals with the strategically important products, which influence the economy of the whole world, one of which is oil. The importance of oil and its impact on the modern economy is very important. Considering the modern economical and political situation and that which existed almost 60 years ago, in 1950s, it is possible to assume that the aspects which influenced the oil price formation and modern one are absolutely different. If oil reserves seem to be about the same now as they were in the 1950s, the price drives of oil and particularly gasoline would be different as the reserves of oil are one of the main price drivers in the modern economy.

Before concentrating attention on the price drivers on the oil today with the 1950’ reserves, the economical and political situation of both periods should be considered. It is significant to remember that 1930 – 1940^th were the years of oil discovery in the United States and with the combination of cheap Saudi Arabia oil, the reserves of the oil were great and could not be the reasons for the oil price rise (Gautier, 2008). To confirm this idea it could be useful to provide the analysis of the oil price rise in 1900s and 2000s (Table 1).

Analyzing the data, it is possible to mention that the price from 1970 to 1980 rose greatly (in several times), and from 2000 till now was unstable and the skips were great. The situation may be explained by inflation and unstable political position in the world.

Table 1. The price for oil for barrel, $. (Oil Price Touches high for 2009, 2009)

The factors which influence oil price have always been different, but there are always the issues which are always taken into account, without referencing to the political and economical position. The price of the gasoline depends on the price of the oil, so it may be said that the main gasoline driver is the oil price. Being more concrete, the latest information shows that 57% of gasoline price is oil price, than, 18% of the gasoline price is the distribution and marketing, 18% taxes, and 6% refining (Gautier, 2008). These activities are reduced to minimum, and in some countries, the dependence may be different. As it is seen from the numbers, crude oil is more than half influencer of the gasoline price, and the increase of oil leads to the gasoline rise. But considering the same numbers, it is also seen that the crude oil price is not the main driver of gasoline price.

The reserves of oil are one of the main drivers of the price. The supply of oil in XXI century was reduced by the USA (Eco-Restrictions Cap Oil Production), but talking about the driver of oil price nowadays with the condition that its reserves as if in 1950s, this condition is not taken into account. One of the drivers of price, which did not exist in 1950s, but exists now, is the ecological restriction. From this point of view, less oil should be produces, and the reduction of production leads to the price rise.

Following the historical rise of price o9n oil, it should be mentioned that price increase since 1950 till 1970 was caused by “significant aggregate supply shocks, risking unemployment and rapid inflation” (McConnell & Brue, 2005, p. 305). In 1950s, the oil price driver was that oil influenced the USA economy greatly, and now this influence is not so great. Moreover, the vice influence took place, when the state economy influenced the oil price and was one of the main its drivers. Having the 1950s supplies of oil and the current position of affairs, when oil is not the main economical affair, the economical situation is the country is not the main oil drives in the USA. Mentioning the inflation, it was noticed that the oil price was influenced by inflation in 1950, but not taken into account greatly nowadays (McConnell & Brue, 2005).

The economical situation in other countries, which influence the global economy also can either reduce or increase the price of oil in the USA. This effect is present nowadays and was visible in the discussed period, 1950s. The example of Asia may be taken into account, when the economical crisis there in 1998 caused “the oil price collapse” (Gautier, 2008, p. 102). Different political changes and economical rise or crisis influence the oil, and as it was proved, the gasoline prices greatly.

Oil production and demand influence the oil price, and the notion of reserves is not to the point in this question. The assumption that the rise of the oil price will lead to the reduction of the demand are not proved. Modern world is the world of cars. People have used to personal cars that even the oil (and as a result gasoline) rise does not reduce the demand (Gautier, 2008). Such situation was in 1950s, and remains in present times. So, it is impossible to say that the rise of price will reduce the demand, so demand may not be counted as the price driver in any situation (present time and 1950s).

The production of oil influence the price and it is the proved factor. When global factors influence the rate of production, the price of the oil rises, and gasoline as the result also goes up. The production of the oil does not depend greatly from he reserves, so this factor can be taken into account dealing with the price drivers for oil with the 1950s reserves.

Thinking logically, the modern crisis is impossible to miss, as the world crisis, which exists today, is one of the reasons why oil price increased and the reserves are not taken into account. The reason is not the oil shortage, but the change of the economical situation in the world, when all priorities and values have to be checked and evaluated from other points of view. The critical condition is some of the world companies, the change of the financing and other aspect has influenced the oil prices all over the world.

Taxes, as was mentioned above may influence the gasoline price without oil price change. To explain this, it is possible to look on the activities, according to which the taxation in different countries takes place. The diagram, which is offered below shows the different of taxation in different countries. Considering the activities, it is possible to say that taxation in the United States of America are the lowest among offered and that the taxation may not be the main influencer on the gasoline price in the USA.

So, considering all the information which was offered, the conclusion about the drivers of oil (gasoline) price in the USA today with the reserves of 1950s may be as follows. The oil price could influence (1) the economical position in the country and (2) in the world (the present crisis is meant in this situation). (3) The inflation, influenced the oil price in 1950s, and could influence the price now. (4) The rate of production of the oil, which does not depend on the reserves of oil, as it is two different activities which influence each other but not directly. (5) The ecological restriction, which demands to produce less oil as its production influence the ecosystem of the whole world and the problems in the environment appear.

Talking about the price of gasoline, the situation is not so different, as gasoline price for more than 50% consists out of crude oil price. Then the taxation and refining influence, but investigations show that he taxes in the USA are not so influential in the reference to other countries, where the taxation per galloon may consist out of 300 cents (in the United Kingdom). In contrast with the USA, this number is 35 cents per galloon. Refining also could influence the price as the technologies, which exist in modern world may reduce the costs on oil refining.

In conclusion, the oil and gasoline price in modern world with the reserves of 1950s would influence all the factors which influence the price of oil and gasoline nowadays, but without the problem of shortage reserves which exist in the United States today. The 1950’s were taken as the reserve example not by chance, but because the 1930-1940s were the years when the new oil deposits were discovered in the United States and 1950s were the years when its reserves were maximum in reference to 2009.

Reference List

Eco-Restrictions Cap Oil Production. (2008). BusinessWeek.

Gautier, C. (2008). Oil, water and climate: an introduction. Cambridge: Cambridge University Press.

McConnell, C. R. & Brue, S. L. (2005). Economics: Principles, Problems, and Policies. McGraw-Hill Professional, New York.

Oil Price Touches high for 2009. BBC News.

The US had experienced a massive rise in gasoline price during the month of February this year. From macroeconomics perspective, there are limited resources that human beings use carefully to satisfy their endless needs.

The price of gasoline, a by-product of oil, highly depends on the price at which oil is acquired from the producers like the Organization of Petroleum Exporting Countries (OPEC), the distribution cost, taxes, currency devaluation and the refining cost.

Currently, the price of oil is also influenced by the worldwide demands and supply of oil and the Iranian sanctions. During the month of February, gasoline price rose; a trend that can be attributed to the above factors, which are going to be analyzed in depth.

Devaluation as a possible factor means the reduction in value of a currency like the US dollar with respect to other monetary units (Currencies: What devaluation actually means, 2013). Clearly, a country that experiences devaluation will have to use more of their funds to acquire services and goods in comparison to other countries.

The immense pressure on the US dollar for over six years had lowered its value by close to 40% (Why Are Gas Prices So High?, 2013). The US dollar, as one of the major currencies of trade is highly prone to market changes. The US citizens, therefore, had to spend a lot of money at the barrels due to the decline in value of their currency.

Additionally, the demand for crude oil in the US and the whole world had been on the rise hence causing the rise in the price of gasoline. The number of consumers in the market at any given time will affect the quantity of product demanded.

For instance, if there are a few customers in the market, the demand curve will shift downwards, indicating a decrease in the quantity demanded at that time (Scarcity, choice and opportunity cost, n.d.). However, when there are many customers in the market the demand curve will move up, indicating an increase in the quantity demanded. The movement in the demand curve alters the price of a product.

From the graph, a decrease in the quantity supplied will shift the supply curve upwards thereby raising the equilibrium price of a product. This is a sign for high shortage of the product. Therefore, the continued demand for gasoline in the US amid the decrease in supply can be viewed graphically as resulting to an increase in the price of gasoline (Factors Affecting Supply & Demand, 2009).

Other factors that can be analyzed from the graph are government taxes that are met by the final consumers. For instance, in 2012, there was consumption of 89.2 million barrels per day (bpd) in the US. This usage was projected to rise in the subsequent years. Markedly, the United States is the largest importer and consumer of crude oil. In 2009, it imported over 5.92 million bpd.

Evidently, a high demand for a product will result to increase in its price if the market is not able to supply enough quantity to cater for the increasing demand (Why Are Gas Prices So High?, 2013). Therefore, in February the US demand for oil remained high amid supplies that could not satisfy the continuous demand. In line with this is the inadequate local supply of oil from the oil companies.

During this time, some of the US oil firms had closed in preparation for the summer. These refinery companies were carrying out equipment maintenance and normal operations. This situation lowered the supply volume of oil products into the US market.

Economically, a decrease in supply results to an increase in the price of a product even if the demand remains the same. In US, there was a reduction in supply combined with an increase in the demand for gasoline among drivers. As a result, the price for gasoline had to rise in response to changes in demand and supply.

In addition, a strict government policy in 2010 that restricted drilling of oil wells at the Gulf of Mexico saw a decline in the volume of oil supplied amid an increase in quantity demanded. The federal government played a role in the rise of gasoline’s price when they refused to permit the drilling of domestic oil.

This approach by the federal government can be seen as a method of fixing prices of certain products through the price system theory. Obviously, an attempt by the federal government to permit the drilling of oil wells at the Mexican Gulf could have contributed to the reduction of the oil price.

Moreover, the use of quota restrictions among the OPEC members on oil production also led to the high price of gasoline. In 2012, the United States received over 23% of oil products from the OPEC countries. Notably, these countries agreed to produce a given amount of oil in order to keep the price high. For example, OPEC in 2002 decided to reduce their barrel production per day by 465000 (Amadeo, 2013).

The controlled amount of production from the sources resulted to an increase in the prices of oil products in the US as the demand went up. Further, the Middle East crisis of persuading Iran to disband its development of nuclear weapons made the oil price to skyrocket.

Iran, which is a leading oil producer, experienced massive boycotts of their oil in the international market until they could comply with the UN’s requirement on nuclear weapons. The rampant Middle East unrest and revolutions caused oil shortage in the US; this occurrence kept the price of gasoline high.

A study of the opportunity cost discloses why Iran opted to look for nuclear power as an alternative for their vast oil and gas resources. This is the cost of forgoing a given product for the other. It is necessitated by scarcity of resources thus leading to giving up on a product for the best alternative.

Opportunity cost arises when there is a choice between two or more available options (Moffatt, 2000). Therefore, it forms a core part in a company’s decision-making process in analyzing the benefits and costs of choices that are made within the company or country. Iran’s decision to control their oil exports to the US and European nations shows the rationale for the high gasoline prices in February in the US.

There is also the aspect of inflation. Inflation is the continuous surge in price of products. The high price for gasoline implied that the consumption of fuel per driver and other machines that use oil products had to go down. Consequently, the businesses had to lay off some workers in order to remain viable during this crisis. Firms tend to gain competitive advantage over each other even at the tough economic times.

These economic challenges reveal a reduction in the Growth Domestic Product (GDP) of a country (Tverberg, 2013). The economy remains unstable with the high price of gasoline. Inflation, therefore, was a factor that led to high price of gasoline in the US. In addition, unemployment began ailing the entire nation. This effect on the oil prices can also cause a recession like transpiration.

The change in the US Monetary Policy forced investors to invest in non-income generating resources. Some of the resources include metals and oil; prices of these products are highly influenced by any economic alterations like inflation and devaluation of currency. Earlier, the high prices of commodities had made it difficult for investors to commit their funds in such commodities like food.

Additionally, both the federal and state governments raised the price of gasoline by levying enormous taxes on the oil products from 2009. For example, the total tax by January 2013 on a gallon of gasoline was 30.4% and 18.4% by the state and federal governments respectively. Clearly, taxation implies additional costs on the price of a product.

Moreover, there was the high refining cost. The refining companies had to transfer this cost to the consumers. By 2012, the retail price of gasoline had 8% as refinery cost. Companies like Chevron’s El Segundo refinery remained offline in February thereby leading to shortage in supply. There were also high regulatory charges that made some oil refinery companies to remain closed since 1990.

For example, the environmental regulation act required $128 billion for compliance. Tied to the refinery cost is the distribution and marketing cost that could have led to high gasoline price. The distribution channels or terminals that gasoline passes before reaching the final consumer come together with additional charges. At this stage, there is gasoline packaging, labeling, blending and branding.

All the cartels in the distribution or marketing chains have to make profit in the end. It is the final users who carry these extra charges on gasoline. In general, these businesses aim at profit maximization in order to register high liquidity. With the low purchasing power of the consumers, they will reduce their product consumption limits.

The high gasoline price remains a challenge for the entire world, and it continues to rise with time. In the US, the demand for oil is far much higher than the supply. US cannot supply oil to its residence. Outstandingly, the forces of demand and supply affect the price of any product. The Iran and Middle East crisis make distributors add risky premiums on the oil thus increasing the price of gasoline.

The stringent environmental rules have also affected the operation of some US oil refinery companies. There is need for the human population to comprehend that there are limited resources that ought to be guarded carefully in order to enhance human satisfaction at an affordable cost (Factors That Affect Pricing, 2010).

Again, there are numerous factors that can affect the value of any product; therefore, therefore, both the producers and consumers should ensure that their practices do not hinder the operations that deliver the product. The prices of various products are a factor to the global economic changes. Gasoline being a product that is consumed worldwide is highly dependent on the global economy.

References

Amadeo, K. (2013). Why Are Gas Prices So High. US Economy.

Currencies: What devaluation actually means. (2013). The Economist – World News, Politics, Economics, Business & Finance.

Factors Affecting Supply & Demand. (2009). Small Business Tool Kit. Web.

Factors That Affect Pricing. (2010). Upload & Share PowerPoint presentations and documents. Web.

Moffatt, M. (2000). What are Opportunity Costs?, Economics at About.com. Web.

Scarcity, choice and opportunity cost. (n.d.). AP US History – AP Exam Review | Adaptive Test Prep For AP Exams. Web.

Tverberg, G. (2013). High Oil Prices and GDP – Business Insider. Business Insider. Web.

Why Are Gas Prices So High?. (2013). Institute for Energy Research. Web.

Introduction

One of the most significant factors which affect the economy of the US and the world in general is its overdependence on oil. Literary the US economy over depends on oil to power its progress. This has made the economy to be very vulnerable to slight changes in the price of the oil. In this article, a close examination of this vulnerability of the US economy to changes in the prices of oil will be examined with an aim of determining whether the price of gasoline will keep on rising.

Supply of Gasoline

The principle factor that affects the price of gasoline is its supply. The world supply of oil is continuously being strained as the demand for more supply keeps on increasing. New emerging economies such as China and India are demanding for more and more oil to power their economies. This ever increasing demand for oil directly affect the economy of the US as forces of demand and supply push the price of the oil upwards. During times of crisis especially when an oil producing country is involved, such as the current one involving Libya, the price of oil goes up affecting the economies which have a heavy reliance on oil and oil products.

Will Gasoline price keep on rising?

On the question of whether the price of gasoline in the US will keep on going higher the answer is yes. There are many indicators which show that the possibility of the price of gasoline rising high is very high. Basically, as noted above, the price of oil is headed to keep on rising by the simple fact that its demand is more than the supply.

Taking into consideration the fact that coming up with alternative means of energy such as using nuclear plants to generate power will likely take a lot of time the supply, in the meantime, will not sustain demand thus meaning that price will likely keep on rising.

Another factor to put into consideration is overdependence of the US economy on oil and gasoline. It has been noted that that the manufacturers in the US do not seem to understand the crisis of energy supply, for instance, it has been noted that even after the 1979-1980 oil crisis, car manufacturers by 1989 were producing cars which guzzled oil:

Cars were getting faster, more powerful, more laden with gadgetry — and gulping more fuel. Americans had evidently decided that a new crisis wasn’t going to happen. The popularity of light trucks, notably sport-utility vehicles and pickup trucks, grew quickly in the late 1980s when Ford’s F-150 pickup became the best-selling vehicle in America, and trendy was spelled S-U-V. (Consumer 1)

Critically analyzing the oil price trend in the US, it can be shown that it has been on a continuously upward movement: “Oil prices have almost quadrupled since the beginning of 2002. For an oil-importing country like the U.S., this has substantially increased the cost of petroleum imports” (Stewart 1). It has been argued that the actual price of $3.00 is not the real price as that price is heavily subsidized by the government to enable US oil companies remain competitive. It has been noted that:

The federal government subsidizes the oil industry with numerous tax breaks and government protection programs worth billions of dollars annually. These benefits are designed to ensure that domestic oil companies can compete with international producers and that gasoline remains cheap for American consumers. (IAGS 1)

It can argued that as long as the US has not developed a reliable alternate source of energy thus continuously keep on depending on oil, then the price of gasoline will keep on rising (Feldstein 1). It has been noted that over the past thirty years a lot of money has been transferred to the oil producing countries thus making a huge deficit in the US economy:

The Department of Energy estimates that each $1 billion of trade deficit costs America 27,000 jobs. Oil imports account for almost one-third of the total U.S. deficit and, hence, are a major contributor to unemployment. (IAGS 1)

The argument above shows that the cost of oil particularly to the US economy is even higher than it seems to be. There are hidden costs such as, “the cost of securing our access to Middle East oil – deploying U.S. forces in the Persian Gulf, patrolling its water and supplying military assistance to Middle East countries – is estimated at $50 billion per year” (IAGS 1).

It should be taken into consideration that the US is not in good terms with the Middle East where it obtains a significant portion of its crude oil. For the nation to continuously ensure its supply of oil, there are some as discussed above which will continue to be incurred thus placing the economy at a precariously vulnerable position.

Conclusion

The price of crude oil has continuously been rising. The US economy has a heavy reliance on the crude oil and as seen above this place the economy in a vulnerable position. A lot of funds are used to access oil from the oil producing countries making cost of oil to be quite high.

There is a likelihood that the price of oil will keep on rising if an alternate source of energy is not found. Since gasoline is directly obtained from crude oil that means as the price of crude oil keeps on increasing, the price of gasoline will equally increase.

Works Cited

Consumer. How to Buy a Fuel Efficient Car. How Stuff Works, 2011. Web.

Feldstein, Martin. Oil Dependence. National Bureau of Economic Research, 2011. Web.

IAGS. How much are we paying for a gallon of gas? Institute for the Analysis for Global Security, 2006. Web.

Stewart, Hale. Why the U.S.’ Oil Dependence is Bad for the U.S. Economy. HuffPost Business, 2007. Web.

Introduction

Over the past decade, there have been continued fluctuations in oil and gasoline prices globally. These price fluctuations have been facilitated by the increase or decrease of crude oil prices in the international market.

The price fluctuations of oil and gasoline have had profound effects on many economies and businesses across the world. It has become difficult to forecast the prices of the two precious commodities with absolute certainty.

There have been times of great panic about the increase in price levels of oil and gasoline. Nevertheless, there has been some relief time when prices of the two products go down.

High fuel prices have always caught the attention of policy makers, politicians, and the general public at large (Krichene, &Fondsmonétaire international, 2006).

The usual response from the public has been an agitation aimed at the energy regulatory bodies to reduce prices of oil and gasoline.

Public, some politicians, and policy makers have been quick to blame regulatory bodies and oil dealers (importers) for conspiracy to manipulate oil and gasoline prices. With the increased awareness, the public has begun to learn the exact causes of fluctuation in fuel prices (Ginn, 2012).

Causes of price fluctuations of gasoline

There are different factors that cause gasoline prices to fluctuate. The price changes of gasoline have been caused by the rising demand for the commodity in the world today.

The fast growth witnessed in emerging market economies today has instigated the increase in demand for gasoline and other fuel products. The increased demand is not marched by the global supply of crude oil, which has been constrained.

This scenario has led to the gradual increase of gasoline prices in the world. Conversely, the recent deceleration in demand of the product has resulted into price reductions.

When the prices of crude oil decline at global stage, it leads to the decline in gasoline prices (United States, Federal Trade Commission, 2005).

Market factors are the major causes of changes in gasoline prices over the years. Most oil refineries import oil from oil producing nations. These refineries have to compete at the global stage for the purchase of crude oil.

When global crude oil prices increase, the refineries are compelled to buy the crude oil at high prices. The high cost of crude oil is then passed to consumers because the refineries have to recover high input costs.

This tends to push the prices of gasoline upwards (United States, Federal Trade Commission, 2005).

Furthermore, regulatory factors also play a key role in determining the prices of fuel in the world today. The Organization of Petroleum Exporting Countries (OPEC) is a body that coordinates the pricing of crude oil.

OPEC is a cartel arrangement that produces the largest quantity of crude oil in the world and has a strong influence on the prices of crude oil. OPEC has the influence on the supply of crude oil.

In this case, when the OPEC increases supply of crude oil in the world, it leads to the decline of gasoline price. On the other hand, when it limits the supply of crude oil, prices of gasoline tend to increase (United States, Federal Trade Commission, 2005).

Furthermore, swings in consumer energy prices have been a major cause of crude oil price fluctuations. Consumer price inflations have played a significant role in the recent price fluctuations.

The increased demand for gasoline pushes the prices of the products from time to time. As the demand continues to rise, the rate of gasoline price also increases simultaneously. In addition, instability in major currencies can be blamed for the fluctuations in the gasoline price.

Changes in foreign exchange values have an important impact on the fluctuation of gasoline prices (Gallup & Newport, 2009).

The recent concerns about environmental pollution can also be taken as the cause of price increase of gasoline. For instance, in the United States, state and federal regulations require blend of gasoline to reduce air pollution.

This increases the cost of production, which leads to an increase in the cost of gasoline. Moreover, state and federal changes in taxes levied on gasoline may also affect the fluctuations in gasoline prices (United States Government Accountability Office, 2005).

In Georgia, there have been minimal variations in gasoline prices over the last five years. Prices have been the subject to changes owing to different factors prevalent in the country. The pricing of gasoline in the country is largely influenced by the forces of demand and supply.

In the year 2010, gasoline supplies were hampered by the repairing of Enbridge pipeline. This caused low supply of gasoline in Georgia, which pushed gasoline prices upwards (Ginn, 2012).

For instance, the price of gasoline per gallon in Peach State was pushed to $2.61 from $2.56 within a month and from $2.34 almost one year ago. Furthermore, fluctuations in crude oil prices have impacted on gasoline prices in Georgia.

High crude oil prices in 2010 greatly impacted on the prices of gasoline which differed from one retail station to constrained supplies. This resulted into increased gasoline prices, hence affecting demand at the same time (Ginn, 2012).

Conclusion

There are many causes of changes in gasoline prices. The factors that cause these changes include market forces of demand and supply to the environment as well as regulatory factors.

All stakeholders including refineries, retailers, consumers, and policy makers should understand these factors for proper measures to be taken to stabilize the prices.

References

Gallup, A., & Newport, F. (2009). The Gallup poll: Public opinion 2008. Lanham, Md: Rowman& Littlefield Publishers.

Ginn, V. (2012). The Underlying Causes of Oil Price Fluctuations. Web.

Krichene, N., &Fondsmonétaire international. (2006). Recent dynamics of crude oil prices. Washington, D.C.: International Monetary Fund, African Dept.

United States Federal Trade Commission. (2005). Gasoline price changes the dynamic of supply, demand, and competition. Philadelphia: DIANE Publishing.

United States Government Accountability Office. (2005). Motor fuels understanding the factors that influence the retail price of gasoline. Philadelphia: DIANE Publishing.

Introduction

A price ceiling or limit refers to a restriction on the quantity that can be demanded as payment, for a certain commodity or service. In most instances, a price limit is enforced by a nation’s administration in a bid to sort out one or a number of issues touching on the general financial system, and it may at the same time, be used to look after the interests of consumers in general.

On the other hand, it is not odd for a number of industries to enforce a price control as a way of propping up the more advancement of that trade (Melanie, 2008). The use of price control for the latter purpose in most times has a lot to do with the association linking the supply and demand for the commodity or service. In order that a price limit comes out as effective, it has to be different from the free market price.

Whenever a price limit is enforced by an administration with a certain objective, a commodity or service that is well thought-out to be important is normally involved. For instance, an administration may enforce a restriction on charges that power firms can demand from clients for every unit of energy consumed.

The initiative is to look after the interests of customers through ensuring that dealers do not charge rates that are expected to make it unattainable for customers to come up with the money for something considered necessary for the basic standard of living. In the US, it is not odd for government-level entities to keep an eye on, and enforce price limits on utility expenses.

The enforcement of a price limit can be of assistance in the evening out a given market, and have a favorable effect on the economy. The approach mostly inspires traders who were charging very high prices for their commodities and/or services to either trim down on production or probably ditch the market altogether. This ends up in suppliers who are at a position to put forward commodities and/or services of up to standard quality at a cost that a customer can actually afford.

Again, the capacity to buy commodities and/or services at sound prices motivates customers to do so. Such consumers, as well, are left with more resources to use up on other purchases, which subsequently raise demand in a number of markets and has the result of fueling the economy. Price ceilings are not beneficial as will be discussed in this article. They are beneficial just at the onset before negative effects set in.

At times, cases of a restriction on how low a price can be demanded for a commodity or service that is seen to be essential occur (Hugh, 2008). This is referred to as a low price limit or ceiling. Such restrictions are aimed at preventing the emergence of a control or within a given industry, an occurrence that would undercut the capacity of a number of firms to be viable.

Should a price ceiling be imposed on gasoline prices in the US market?

Price ceilings should not be enforced on gasoline prices in the United States market. There are a good number of reasons for this, and they are going to be highlighted here. To begin with, gasoline firms sell their fuel at prices determined majorly by the global costs of the commodity. They are in business, and their major aim is to make profits just like any other business people.

These firms import the commodity and have to adjust their selling prices to make reasonable gains. When the prices at which they buy the gasoline go up, they as well have to raise the prices at which they sell to their consumers (Alston, Kearl & Vaughan, 1992, p. 203). In a scenario where they are operating in a market with a price ceiling, it means they cannot adjust their prices upward even though they have imported the commodity at elevated costs.

The future of doing business in such a case then turns out to be bleak, and it will be a matter of time before such traders close shop. With private dealers out of business then the next step will be government nationalization of the same industry, something that in the end will be borne by ordinary citizens.

If events from the past as far as gasoline price ceilings are concerned in the United States are anything to go by, then the same should not be allowed to take place. At the time when the US administration put in place upper limit prices for gasoline in 1973 and 1979, traders put up for sale the commodity on a first-come-first-served basis.

Motorists had to remain in long queues to purchase gasoline. The proper cost of gasoline, which entailed both the money shelled out and the time used up hanging around in the queue, was in most times higher than it would have been if the cost had not been limited. In 1979, for instance, the US set the cost of gasoline at around $1 for every gallon. Assuming the market price had stood at $1.3, a motorist who purchased 10 gallons would have put aside $ 0.3 for every gallon.

However, if he or she had to be held up in a queue for half an hour to purchase gasoline, and if their time was worth $7 for every hour, the actual cost to him or would be more or less $10 for the commodity, and $5 for the time. This implies that the total expense would be $1.5 for each gallon (Hugh, 2008). A quantity of the commodity, as might be expected, was held for acquaintances, loyal clients, the politically well connected, and those who were ready to give a little amount on the side.

Globally, the general trend as far as gasoline costs are concerned is one that is going up. Experts say that the commodity is getting scarcer with an increasing demand. This form of energy is not renewable, and the sooner its consumers realize this fact the better.

If the dynamics of the market demand that prices go up, there needs to be no restriction as this will serve as a wakeup call for the coming up with affordable and renewable energy sources. When such energy sources come up it will be a plus for the environment, which is choking from gasoline combustion products.

Price ceilings over gasoline pose a problem in the trade-off involving the requirement to have an uncomplicated plan normally looked at as reasonable and the requirement for adequate flexibility to uphold effectiveness.

Coming up with an outward show of evenhandedness calls for maintaining a host of prices stable, but effectiveness calls for effecting recurrent changes (Melanie, 2008). Alterations of comparative prices, on the other hand, subject the official procedure governing controls to an onslaught of lobbying and objections of injustice.

As it has been mentioned earlier, gasoline prices standings are majorly determined by dynamics in the global market and importers of the commodity have to adjust to these dynamics. The United States market system is at a very advanced stage, being one of the leading economic powerhouses in the world. In as much as there have to be regulations in the market set up and more especially on essential commodities like gasoline, a limit should not be set on these commodities as it will bear a negative impact on this economy eventually.

Considerations

The universal economic position as far as price ceilings are concerned is that price ceilings price ceilings should not be used for a long period. This therefore, implies that short-lived use of price ceilings in times of elevated inflation is justified. The use of these economic interventions for a long period poses problems that have been mentioned earlier.

Conclusion

Price ceilings on essential commodities like gasoline do not have any good outcome after being analyzed well. They normally come out like an excellent idea at the onset. However, the very act of limitation alters the manner the market functions, and ends up causing unplanned outcomes such as scarcities. The scarcities then have a tendency to reward speculation in the place of actual investment and advancement.

Gasoline is costly because we cannot go on with our lives without it. We therefore, have to purchase it regardless of its price. Actual answers for transport and development are not as effortless as saying gasoline needs to be affordable all the time.

Reference List

Alston, R. M., Kearl, J. R., and Vaughan, M, B. (1992). Is There a Consensus Among Economists in the 1990’s? American Economic Review 82 (1992): 203–209.

Hugh, R. (2008). Price Controls. Retrieved from http://www.econlib.org/library/Enc/PriceControls.html

Melanie H. (2008). Advantages & Disadvantages of a Price Ceiling. Retrieved from https://smallbusiness.chron.com/advantages-disadvantages-price-ceiling-25210.html