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The price of gasoline is a major interest to almost everyone in the country
and almost everywhere in the world. It seems that every month and sometimes more
frequently, gas prices are either spiking or dropping, never staying stable.
Gasoline prices are affected by many factors, including the price of crude oil
in the world market, supply and demand for gasoline, local market competition,
temporary supply interruptions, government regulations, or taxes. Gasoline is
produced by a distillation process where crude oil is heated and fumes are
captured and converted into many products such as kerosene, jet fuel, and
gasoline to name a few. Therefore the price of crude oil, which is extracted
from oil wells beneath the earths surface, is a major factor in gas prices. The
five leading oil-producing countries and their approximate shares of the world
supply of oil are: Soviet Union 21%, Saudi Arabia 17%, The United States 15%,
Venezuela 4%, and Mexico 4%. These five countries made up 61 % of the worlds oil
production back in 1980.
Even though The United States is a major producer of
oil, it does not make them self-sufficient. The United States uses more oil than
they can produce and must look towards foreign countries. An organization called
O.P.E.C. controls approximately four fifths of the worlds oil reserves in the
non-communist world. The United States is forced to deal with O.P.E.C., not only
in its own interests, but also in the interest of its allies and in the interest
of maintaining peace.
The former Soviet Union may now have an interest in
selling some of their oil that they have a tremendous amount of. O.P.E.C. which
stands for Organization of Petroleum Exporting Countries, is made up of 13
countries: Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Indonesia, Libya,
United Arab Emirates, Algeria, Nigeria, Ecuador, and Gabon. O.P.E.C. was founded
in Baghdad, Iraq in September of 1960. It was organized in response to oil
producing countries that did not consult with the Middle Eastern oil states
before lowering their crude oil prices. The producers feared that other
countries would establish monopolies.
The aim of O.P.E.C. was to create a
universal price between the countries, in order to ensure peace between oil
producers throughout the world. O.P.E.C. also wanted to provide its members with
technical and economic support in times of need, since not all the countries
were completely stable. The headquarters were initially set in Geneva, but were
later moved to Vienna in 1965. O.P.E.C.’s goal was to establish firmly unified
prices amongst their members, but the organization was not always successful. In
their quest for control over the world market of oil production, they have ran
into several obstacles and setbacks. O.P.E.C. has barely survived being
eliminated due to internal conflicts amongst its members. Since O.P.E.C. almost
has a strangle hold on the worlds oil supply, The United States is extremely
concerned with the areas instability. The Middle East and the Persian Gulf area,
where most of the members are located, are extremely prone to wars, both civil
and cross borders, plagued by religious battles, and positions of power are
frequently overthrown, making it hard for any stability to come out of the area.
Any time there is chaos in the Middle East, The United States thinks back on
…memories of other troubles in the Persian Gulf area: the Arab oil embargo in
1973-74, the Iranian revolution in 1979-80 and Saddam Hussein’s invasion of
Kuwait in 1990.
(1) The area is also vital to our allies, who would be crippled
without Gulf oil, whose livelihood we are dependent on. In 1973 O.P.E.C. raised
oil prices 70%. The dominant Middle Eastern members of O.P.E.C. used succeeding
price increases as a political weapon aimed at Western nations in retaliation
for their support of Israel against its Arab neighbors in the so-called Yom
Kippur War of October 1973. Prices were accordingly raised another 130% at the
Tehran conference of December 1973, and a temporary embargo was placed on the
United States and the Netherlands at the same time. Other prices increases
followed in 1975, 1977, 1979, and 1980, which ultimately raised the price of a
barrel of crude oil from United States $3.00 in 1973 to $30.00 in 1980. (2)
Almost every college student has heard stories from friends or relatives about
the gas crunch in the 1970’s. People waited in lines that stretched for miles,
and could only get gas on certain days depending on the first letter of your
last name. O.P.E.C. used the money they raised to invest in other countries,
placed in foreign banks, currency markets, and to help their own economies
through inner development. O.P.E.C. is also extremely interested in maximizing
profits, but in such a cartel, it is impossible to find a price that will
maximize profits. O.P.E.C. has attempted to raise prices several times by
cutting production. According to economic theory, a decrease in supply will
yield higher prices. These are some of the reasons The United States must offer
stability and continue to have troops in the area, intervening when the worlds
oil and its prices are in jeopardy. Currently crude oil prices are rising due to
the bombings in Saudi Arabia.
…It has continued to soar, to more than $24 a
barrel, up 34% from one year ago, the highest level since the 1991 Persian Gulf
War. (3) This increase has been contributed to several factors: 1) the rising
demand of crude oil throughout the world 2) the tight inventories because of the
belief that supplies are going to run low 3) the current turmoil that exists in
the area and 4) heating demands of the abnormally cold winter. These factors
have already raised the prices of diesel fuel, jet fuel, and home heating oil.
This is of major concern to truckers, airlines, and home heating oil companies.
As a result of these price increases, airline ticket prices will also increase.
These are just a few of the elements that effect prices, but none of them have
the power to greatly change the price that exist at the pumps. The demand of
crude oil is always cyclical.
The United States demands more gasoline in spring
and summer months than in the fall or winter, due to people driving more. The
current trend in vehicles has moved to larger sport utility vehicles from small
economy cars of the past and consume more gas and get less miles per gallon. The
country is constantly searching for new and more efficient forms of energy. More
importantly the country is searching for means of energy that will not make
Americans poorer. The following chart shows the price of oil per barrel over the
last year. These prices match the increases that take place at the pumps.
Countries around the world are hanging on the decision of Iraq, regarding
renewal of oil sales. However, the fact remains that if Iraq indeed decides to
renew oil sales, will prices really drop? Even if Iraq gets back into the
business of selling oil, it would be unlikely to cause a drastic shift in the
price of a gallon of gasoline. Saddam Hussein’s actions have not been stable in
the last few months.
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