FREE ESSAY ON GASOLINE PRICES

GASOLINE PRICES

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. Iraq was supposed to begin exporting
on Memorial Day, but due to erratic behavior, talks have been put on the back burner.
Since there are so many factors involved, even if Iraq exports a tremendous amount of
oil, consumers will probably not know the difference. Other factors, other than the
demand and price of crude oil in the world effect prices. 
Several interruptions in The United States production of oil has staggered the countries
production. The United States is the only major oil-producing country where oil producing
grounds are owned by the land owner and not property of the government. This makes for
inefficient drilling since one party is not completely responsible for gathering all the
oil. Average production per well is only 15 barrels per day, far less than any other oil
producing countries. Alaska has the best oil producing land, but due to the land and
harsh climate, it makes it hard to gather. It is also very expensive to develop methods
of transportation which slows gathering of the oil. Several refineries-on the West Coast,
in the East and on the Gulf Coast - have experienced operational difficulties which
affected product supplies in the marketplace. (4) It is rumored that their are supply
tanks buried somewhere near the Gulf of Mexico that could support the country for 66 days
if anything were to happen. The United States and other countries have been looking into
alternative forms of energy in order to lower their dependency towards foreign oil. Money
is being spent into researching solar, hydro, nuclear, and alternate forms of energy. 
Government regulations also create changes in gas prices. California has recently gone
threw price increases at the pumps due to new legislation. The state is heavily
overpopulated and has the worst smog of all the states. California gas stations are
changing to a cleaner gas that will cause less air pollution, but will be more expensive.
The increase is approximately 10-12 cents. That is the price Californians are going to
have to pay for cleaner air. Another government regulation is aimed towards the refiners
of the oil. The government is putting pressure to change from their winter grades which
are oxygenated, to summer grades that have lower evaporability, helping the environment.
These costs to switch fuel show up at the pumps, the public has to pay for governmental
research and environmental precautions. The United States doesn't have it as bad as some
other countries. The U.S. pays an average of $1.21 per gallon of gasoline. Japan pays
$5.35/gallon, Germany pays $4.04/gallon, The United Kingdom pays $3.38/gallon and Mexico
pays $1.55/gallon. All four are significantly more than the United States pays. 
Taxes are the largest component of the prices we pay at the pumps. Taxes were the single
largest component cost of gasoline, amounting to 42.4 cents per gallon, including 18.4
cents per gallon in federal taxes, 22 cents per gallon in weighted average state taxes
and an estimated 2 cents per gallon in local taxes. (5) The President of The United
States of America, Bill Clinton, has on several occasions proposed to increase the taxes
put on gas. In 1993 Clinton proposed a gas tax that raised the prices at the pumps by 7.5
cents per gallon, a 6% increase of the price. Then in 1996, Bill Clinton made a proposal
to raise gas taxes by an additional 2.5%. Clinton wanted to raise prices 10 cents per
gallon overall in his four years in office, all part of his deficit reduction plan. (6)
Clinton's entire campaign was based around not hurting the American people with taxes,
but once in the white house, has made the record books with the highest amount of
gasoline taxes ever. Taxes are so much a part of the prices we pay that ...in 1981 when
pump prices where at an all time high of $2.27 per gallon, the taxes were just 27.7 cents
per gallon. The real cost of motor gasoline to consumers fell by about a dollar per
gallon between 1981 and 1995, but over the same period federal, state and local motor
gasoline taxes increased by nearly 15 cents per gallon. (7) Taxes in the United states
have increased an average of 15.6% in the last three years. mThis chart shows some United
States cities and the price increases. 
Many factors influence the prices of gasoline. Gasoline prices are affected by the price
of crude oil in the world market, supply and demand for gasoline, local market
competition, temporary supply interruptions, government regulations, or taxes. Everyday
new things can happen to change the prices that American consumers pay at the pumps. The
United States is dependent on foreign oil and must continue to ensure stability in the
Middle East, or until we have found alternate sources of energy. Taxes will continue to
climb due to the rise of government control. Regulations will continue to become stricter
until gasoline usage is more environmentally friendly. It looks as if gas prices will
continue to fluctuate, but over time will tend to rise.