This Essay Is About Why Gas Prices Change. It Includes Background Information On Petroleum As Well As The Way The Gas Economy Works.

1324 words - 5 pages

Why Do Gas Prices Change?When thinking of modern technology, it is hard to think of anything that does not require some type of oil to power it. As a society, we are completely dependent on oil. Oil was formed millions of years from the remains of animals and plants in a marine environment. Layers of mud covered the remains while heat and pressure helped turn the remains into crude oil, or petroleum. The word "petroleum" means "rock oil" or "oil from the earth." The world's top 5 petroleum-producing countries are Saudi Arabia, the United States, Russia, Iran, and China. After the crude oil is removed from the ground, it is sent to be refined into petroleum products. One refined barrel of crude oil produces 19.4 gallons of motor gasoline. "Because crude oil is the largest non-tax cost component of a gallon of gasoline, the price of gasoline is determined largely by the demand and supply of crude oil worldwide."Anyone who has driven a car knows the frustration of fluctuating and high gas prices. One day gas is cheap and the next day it shoots up by 5 cents. "The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and, finally, the retail station costs and taxes. The prices paid by consumers at the pump reflect these costs, as well as the profits (and sometimes losses) of refiners, marketers, distributors, and retail station owners." With gas prices reaching as high $1.67 a gallon in San Francisco during the last week of April, one can't help but wonder what makes gas prices change? The same factors that make many prices change, supply and demand.Organization of Petroleum Exporting Countries (OPEC) was set up to bring "stability and harmony to the oil market by adjusting their oil output to help ensure a balance between supply and demand." If all the countries that rely on petroleum exportation produced as much crude oil as they could, they would flood the market with oil, thus increasing the supply and causing the price to decrease. OPEC strives to maintain an equilibrium between oil in the market and the price/demand. OPEC wants to have enough gas in the market that makes it affordable while still having a limited amount to ensure them a profit. The supply and demand curves for gasoline are very flexible and constantly changing.Issues in the Middle East also account for the changes in crude oil prices. Some crude oil shortages have been caused by the Arab oil embargo in 1973, the Iranian revolution in 1978, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990. In each of these instances, the oil producing countries have wielded their oil as a weapon and taken advantage of the worlds dependency on their product. They cut supply way back causing the prices to rapidly increase. During the Arab oil embargo, people were forced to look at the types of cars being driven and reevaluate the oil usage. Since then, fuel-efficient cars have been...

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