Gasoline Price in the US Economy

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Table of Contents

Introduction
Supply of Gasoline
Will Gasoline price keep on rising?
Conclusion
Works Cited

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.

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Gasoline Price in the US Economy

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