Microeconomics Issues of Rising Oil and Gas Prices: Analysis of Two Articles

The price of gas has gone up for the 30th day in a row, and with it tempers are rising. Increased demand for public transportation is expected to continue into the spring [1]. The impact of high oil

The following article is regarding what is most important to everyone around us regarding the pricing for gasoline at the pumps. This is a topic that concerns most people on this planet, why are the prices for gasoline so high and is it regarding the greed of oil producing companies to continue to keep rising the gasoline prices as high as possible. We will discuss the many reasons why these fluctuating pricing keeps occurring within our world market. We will use the retail gasoline pricing between the

Discuss how rising oil prices might affect the macroeconomic performance of an economy. (25 marks)

Several oil-countries have been facing economic and political turbulence as a result of the crash in oil prices, and there is disagreement among OPEC as how to handle the situation. (Krauss) While this is happening, America’s oil production continues to rise, as it inches closer to becoming an energy superpower in production and consumption; and countries that depend on their oil exports face recession.

Due in part to globalization, the macroeconomic environment in which the world operates, is now more dynamic. Consumers, particularly those in both emerging and developed nations, must now contend with a litany of adverse conditions that were generated outside the confines of their country. Currently, worldwide stimulus efforts on the part of countries are creating threats of worldwide inflation, currency devaluation, and the erosion of consumer purchasing power. As a result, the policies and actions of one nation affect the consumers in another nation either positively or negatively. Gas prices are no different in this regard. With worldwide money printing the price of commodities overall has risen. As the case indicates in its scenario, gas prices will double. This has adverse consequences in the manner in which consumers purchase products. Due in part to the income effect and substitution effect, consumers will react differently to various stimuli in the macroeconomic environment. In this instance, the doubling of gas prices will ultimately alter the attitudes, perceptions, and behaviors of consumers. As soon depicted in the scenarios above, rising gas prices will have an adverse effect on consumer behavior

The consensus from the 1970s and 1980s was that there was an inverse relationship between oil prices and real economic activities. This belief later changed when the oil price crash of the mid-1980s failed to boost economic growth. Researchers then believed that increasing oil prices negatively affect the economy whereas falling oil prices have very little impact and by the 1990s this impact was assumed to be minimal (DePratto, de Resende and Maier 2009). More recently, researchers have found that increases in the oil prices adversely affect the economy whereas the impact of a decline in oil prices on GDP growth is only negligible (Jimenez-Rodriguez and Sanchez

The demand of gasoline has increased steadily over the last twenty years. In 1981 the U.S. averaged 6.5 million barrels of gasoline consumption per day. By comparison, in 2004 the U.S. averaged 9.2 million barrels of gasoline consumption per day. For most of this time period, gas prices stayed relatively the same. This is because the U.S. refineries increased their production to meet the demand and maintain the equilibrium price. Also during this same time period worldwide demand for crude oil increased 27%. Crude oil producers also increased their production to meet the demand keeping prices the same.

The immediate economic impact of the Iraq war has been to cause uncertainty in the direction that the U.S. economy will take. In a recent USA Today article, Polya Lesova sites the record high cost of crude oil at $91.86 per barrel as a precursor to an impending crisis. “An unexpected drop in U.S. stockpiles has added to ongoing concern that supply from the Middle East may be disrupted." Economists such as Stiglitz believe that there are two reasons the Iraq war has significantly impacted global oil prices; 1) it has added significantly to

Summery: Now you know that the rise in gas prices is because of three main factors, the price rising of crude oil, continues increase in internal regulations in the United States and the huge increased demand for the product in and out side the United States.

Each time a person residing in the United States pulls up to a gas station to fill their tank it costs more money. This is particularly true of the past four years. Many focus the blame on the American Government but there are a multitude of factors causing gasoline prices to be so astronomically high. Middle eastern war, environmental precautions and government all seem to have a hand in the price we pay at the pump.

The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)

Evidently, the connection between fuel and the world has resulted in an intimate relationship between global economy and the prices of oil. In this regard, the world is increasingly growing dependent on petroleum and, as such, it follows that matters concerning fuel prices are bound to affect the global economy. Be it a slump or a rise, oil prices factor significantly in every country regardless of if the given country is an importer or an exporter; however, the impacts are different in magnitude for each nation. In fact, the behaviour of fuel prices at any given moment world widely is crucial in determining the performance of the global economy with both low and high prices affecting the economy exclusively.

The US consumed 142 billion gallons of gasoline in 2007 and the tax applied on it is 18. 4 cents on one gallon. All around the US, there are around 162,000 retail gasoline outlets. With the price of crude oil hovering around $100 a barrel, it is no wonder that concern is growing about the gas prices being so high. After all, modern economies are kept moving by this lifeblood. For instance, in the United States alone personal vehicles consume more than 140 billion gallons of diesel fuel and gasoline per year.However, there are several factors that contribute to the gas prices being so high. Given below are a few of them. Increasing Demand for Oil One of the main catalysts for the incessant rise in gas prices has been one of the most

The data collected factors that the authors thought would contribute to the price of oil. All 14 OPEC members monthly oil production is found on the US. Energy Information Administration. The United States of America monthly production is found on the U.S. Energy Information Administration. Data also collected on the prices of commodities including Gold, Coal, and Oil. This is collected from the Federal Reserve of Economic Data. The price of the Dow Jones Industrial Average and the Trade Weight United States of America Dollar Index: Broad also collected from the Federal Reserve of Economic Data.

The global oil prices have fallen sharply since the second half of 2014, which has led to a series of economic problems. Oil prices have been stable from 2010 until mid-2014, remaining at around $110 a barrel (BBC News). However, prices showed a sharp decline since June 2014 and have been more than halved now (BBC News). Brent Crude oil is priced below $50 a barrel and US crude is dipped down to below $48 a barrel now (BBC News). Oil prices shock is making the whole oil industry straggling. In particular, oil producing and exporting nations including Russia, OPEC (especially Venezuela and Saudi Arabia), and United States are the major victims in the oil prices shock. They are suffering from a fallback in their economy development due to the significant revenue shortfalls. Russia is suffering from a significant economy recession (BBC News). Brad Plumer points out that economy in Russia is “facing a potential meltdown”; Venezuela is “facing unrest” and “may default on its debt”; and Saudi Arabia will face heavy pressure if the price remains low even it has prepared for the shock (par. 7). Nonetheless, low oil prices are welcomed by oil importers like Europe, Asian countries, especially China, Japan, and India because they can pay less for oil. Europe’s flagging economies are characterized by low inflation and slow growth, receiving 0.1% increase in economic output when a 10% fall happened to oil prices (BBC News). China, the largest net importer of oil is surely benefiting