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Increasing Oil And Gasoline Prices Essay

1270 words - 5 pages

We the American people have seen rising oil and gasoline prices continuously over the last few decades. Each year is slightly higher than the last. However, we have seen a few instances where oil and gasoline prices have spiked rapidly enough to invoke the American public to stop spending or cut back. The first time in recent history was after the hurricanes Katrina and Rita in 2005. Then, in July 2008 we saw a massive jump to the current record high national average of $4.50 per gallon of gasoline. Oil at this time was over $115 per barrel of light sweet crude which is the oil that American’s use in their gasoline. Currently the US oil and gasoline prices continue to increase. In the last month gasoline alone has risen almost 17 cents a gallon that’s slightly over a 5% increase (source). Compare the increase in the last month to the average yearly increase of %14 or roughly 39 cents per gallon (source). This leads to a particular, why is the price of oil and gasoline increasing at such a rapid rate? Three possible reasons for this could be: the unrest in the Middle East, speculation and risky trading on futures, or a simple difference in supply and demand.
The unrest in the Middle East would be a valid disruption in normality of prices if the Middle East were exporting less oil than it did before the many revolutions. However, Saudi Arabia has said it will make up the difference in the supply if the supply were to drop of significantly (source). Other members of the Organization of the Petroleum Exporting Countries (OPEC) have vowed to “do more” if the region continues to become destabilized. Libya for example only accounts for 2% of the world’s resource of oil (source). Libya’s oil is special only because it contains 0% to .5% sulfur in it this only really matters to the refineries that it exports to. However, only 50% of Libya’s daily production of 1 million barrels per day is cut off due to the revolution. Thus, if the reason for the panic in oil prices is Libya then there really isn’t one. Considering that most of Libya’s export goes to Europe and it’s also in the form of Bent crude oil which American doesn’t even use. In comparison Egypt and Tunisia during their revolutions didn’t loose any oil exports. So again even as a whole the conflict in the Middle East isn’t a valid reason for this jump in oil prices. These events can have an effect on oil prices. However the evidence only points to a partial effect, not as much as some people would have you believe.
The next most common used cause for the increase of oil prices is the explanation of supply and demand. Currently the world uses 85 million barrels a day, and currently the supply per day is only 80 million barrels (source). To reflect, the current market price of oil is roughly $105 per barrel. For those that say supply and demand is the main reason why I have a question. Why if the difference is 5 million barrels per day is the price per barrel of oil only $105? When in 2008 the...

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