By Syrian Crawford
Imagine someone at the gas station on a beautiful spring day. As they are filling the tank, they look up and see the price has risen five cents overnight or comparing in their mind, the most recent gas bill from the previous month. “Where do these prices come from?” This is a question most people have asked themselves at one point or another in their lives. For the past decade gas prices have climbed steeply and the pain at the pump has been no different. For every penny increase at the pump, $1.4 billion per year leaves the collective pockets of the people. What could be the cause of rising gas prices in America? Some may say that the political instability in oil producing countries is causing these rising gas prices they pay at the pump. Others may blame the shortage of oil. And yet some still blame the government.
Global politics play a part in the price we pay for our gasoline. The largest parts of the world’s leading oil producers could be defined as being in turmoil and chaos. Because of the climates of the governments that produce the majority of the world’s crude oil, Iran, Sudan, Iraq, Syria and Yemen, countries in Europe and Asia have been in a panic to buy stock for them leading to inflated prices. In layman’s terms, these countries have started to hoard. According to James Williams,” It's exactly a mess,… I would say in terms of overall geopolitical risk of a major supply interruption with limited spare capacity to handle it, this is the worst of times.” If there is a conflict or threat of war or conflict with the chance of a disruption in production in an oil producing country will cause oil and gas prices to increase. The Organization of Petroleum Exporting Countries (OPEC) is an organization of oil producing countries which produces over 40% of the world’s crude oil and has two-thirds of the world’s oil reserves. This organization was formed in 1960 to regulate the supply of oil and to some extent, the price of oil. The organization includes Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, and Venezuela. According to the Chevron Corporation, like agricultural products, such as wheat and corn, and precious metals, such as silver and gold, crude oil is traded on the world market. Recently, crude oil prices have risen dramatically, driven by rising global demand and political instability in several oil producing countries. Since crude oil is the primary raw material used in producing gasoline and other petroleum products, it is essential in price determination of gasoline. The price of crude oil may account for up to half the price of a gallon of gasoline. In 2005 the price of crude oil averaged $50.23 per barrel. In comparison, the average price for crude oil in 2004 was $36.98 per barrel. Fast-forward to the present, and the price of crude oil averages $77 per barrel. It is not just political instability that drive the prices up though.
When the modern oil industry was born 145 years ago in Titusville, Pa., few people worried about just how long petroleum would keep flowing out of the ground. But since production peaked in the United States in 1970, a growing number of geologists, economists and industry analysts have been pondering the question of just how long worldwide supplies will keep up with growing demand. “We really are close enough to the edge to have no excess capacity. Demand growth shows no sign of slowing and now it seems to be accelerating,” said Matt Simmons, a Houston-based investment banker. According to the U.S Department of Energy, if demand rises quickly or supply declines unexpectedly due to refinery production problems or lagging imports, gasoline inventories may decline rapidly. When stocks are low and falling, some wholesalers become concerned that supplies may not be adequate over the short term and bid higher for available product. Gasoline may be less expensive in one summer when supplies are plentiful vs.