This analytical essay is related to the increasing gas prices of today. The Works Cited page appends four sources in MLA format.
The continuing chaos in the world has had some effect or the other in the lives of all. One such area of our lives is the constantly fluctuating gas prices. Gas is one of the most basic necessities of life in the 21st century. Gas prices have been on a definite rise since sometime. In recent years, the demand for gas and oil has been on a constant rise and with it there is also a constant rise in the prices of both these items. Natural gas or fuel demands have increased due to certain factors. The most basic of all these factors are the weather and the economic activities of regions. According to sources, “due to the importance of the weather factor, natural gas demand is highly seasonal. Other forces affecting demand are population changes and natural gas user trends. Changes in legislation concerning air pollution control may lead to increasing demand for this clean fuel. Supply factors are transport availability and accessibility as well as the physical amount of natural gas being produced and the level of stocks.
Natural gas competes with other sources of energy as oil, electricity or coal. Natural gas price is particularly pegged to that of oil, since oil is natural gas closest substitute and supply of oil and natural gas are closely linked” (Prices: Benchmark and price discovery mechanism, p.1). The main uses of gas, which is one of the chief, products that is attained by refining crude oil, is in transportation such as automobiles, boats and other vehicles. Hence gas is something that is needed by everyone to get to places. Hence, increased gas prices have caused much trouble for everyone. The reasons for this sudden rise in the increase of prices of gas and oil, along with the ways by which these prices can be controlled and lowered will be discussed below.
Reasons Why Gas Prices are Increasing
Gas and oil prices have been on a constant rise since the last couple of years. Prices have been increasing since perhaps the end of 2003 or beginning of 2004. According to statistics, “the price of standard crude oil on NYMEX was under $25/barrel in September 2003, but by August 11, 2005, it had risen to over $60/barrel, and topped out at a record price of $78.40 per barrel on July 13, 2006” (Wikipedia 2007). As gas is achieved by refining oil, hence the prices of gas increase with the increasing rates of oil. The basic issue of raised prices starts with the politics of the world. A vast number of experts have provided information over this topic and all of them basically believe that the politics of the world have caused this sudden rise in not only the prices of gas and oil, but of many other products as well. These political conditions include the launches of missiles in North Korea, the Israel and Lebanon crisis, Iraq crisis, nuclear brinkmanship in Iran etc. Trouble in these areas has decreased the export of oil and gas, and naturally a decrease in supply would result in increased prices. According to sources, “there are a number of reasons for the decrease in oil supply, leading to increased prices. Growing turbulence in the Middle East, the world’s largest oil-producing region, has led to decreased exports; some economists attribute the dramatic fall in supply to the war in Iraq, Iran’s nuclear program, and instability in Saudi Arabia. Outside the Middle East, other oil producing nations have experienced similar problems, such as the strikes and political problems in Venezuela and potential instability in West Africa” (Wikipedia 2007). The United States of America has the largest demand for oil and it is currently using around twenty five percent of the the total oil production of the world along with a whole fourty percent of the entire world’s gasoline production. Because of the falling and unstable domestic reserves and he inability to put up with the ever increasing demands, the U.S. has had to import nearly 2/3 of the oil and gas that is being currently consumed from other countries. Hence, any supply disruptions cause trouble for the U.S.A and such disruptions have definitely been taking place, which has caused the increase in prices. Gas prices increase due to the rise in the cost of crude oil. Now because of the political turmoil in the major countires that export oil has brought about a sudden decrease in the supply of oil, hence the increase in gas prices. Another factor that plays a great role in the increase of prices is natural destruction and in this case, for example, Hurricane Katrina. Katrina had a devastating effect on the gasoline market of the U.S.A, “initially taking out more than 25 percent of U.S. crude oil production and 10-15 percent of U.S. refinery capacity. On top of that, major oil pipelines that feed the Midwest and the East Coast from the Gulf of Mexico area were shut down or forced to operate at reduced rates for a significant period. With such a large drop in supply, prices spiked dramatically. Because two pipelines that carry gasoline were down initially, some stations actually ran out of gasoline temporarily” (Energy Information Administration (2007)). Because of this trouble, gas prices, which normally were around seventy cents below the national, average rose up to about $3.12 by the 30th of August. People have also blamed the Organization of Petroleum Exporting Countries (OPEC) for the rise in prices. The Organization of Petroleum Exporting Countries had made a decision to increase the price of crude oil. This decision in turn made the refiners cut back a vast number of their operations, which further led to a whole four percent decrease in supply of oil and gas and that too at a time when gasoline demand was at a rise. Hence the decrease in supply led to an increase in prices and is still going on.
Apart from these problems, the most basic and long lasting problem is the fact that the world might be going through PEAK OIL, which means that after a genuine increase in the amount of oil being discovered and used, the production rate of oil will start to decline. The amount of fossil fuels in the world as known by all is very limited and a general fact is that the remaining accessible supply of fossil fuel (which are then burnt as oil and then gas) will be used by the Third World countries that are yet growing and industrializing. Remaining fuels are rather hard to extract as the easier ones have already been discovered and made use of. According to sources, “Producing many remaining known reserves is more technically difficult and therefore more expensive, so it is only economically feasible in high oil price environments. The remaining sources have not been discovered or at this point in time are unable to be utilized due to political turmoil or other reasons of instability in the countries of discovery” (Wikipedia 2007).
Refining costs of the oil are also yet another cause for the increase in the price of gas. As sources say, “on average, the cost of refining crude oil accounts for around 20 percent of the price of a gallon of gasoline. Refinery costs include crude oil processing and oxygenate additives, reformulating gasoline, shipping and storage, oil-spill fees, advertising, the purchase of gasoline to cover shortages, and profits. Unexpected refinery outages, which occur more often at high utilization rates, can have a significant impact on regional prices in the short run” (Wilson and Antonelli, p.1). The definite increase in the price of gas can be calculated by the fact that just recently on January 17th, 2006 the price of delivery rose by $2.38 (3.7%) to $66.30 a barrel and then further on to $68.38.
Ways to Lower Gas Prices
The first and foremost step that can be taken by the government in order to reduce gas price is to cut down the taxes levied on them i.e. gas taxes. Also, exploration of the domestic reserves can be helpful too, atleast in the short run. According to sources, drilling in the Alaska wild life refuge can produce as much as one million barrels a day, which can lead to atleast a ten percent decraese in the import bill. But perhaps the most effeicient way of controlling the prices of gas and oil is to cut down on the tax that is levied upon people.
In the light of the above discussion, we can hereby culminate that oil and gas are some of the most basic nescessities of the life of just about any human in the 21st century. As the world progresses there has been a certain increase in the demand of oil and gas not only in the United States but across the world. The demand is high and supplies are low, which has caused a definite increase in the price of oil which leads to an increase in the prce of gas. A large number of factors are involved in this sudden increase in the price of oil and gas. First of all, the political turmoil that has taken over the world, especially the Middle East, which the largest exporter of oil has cut down on the supply of oil. U.S.A having the largest demand of oil has faced much problem because of this issue, hence the rise in prices. Natural calamities such as hurricane Katrina have also played a role along with the general worry of the Peak Oil being reached as well as the costs that are currently being required to refine oil and the increase in the price of crude oil by OPEC are all the factors that have led to the increase in prices of gas, which has reached as high as $68.38 a barrel.
Energy Information Administration (2007) A Primer on Gasoline Prices. Retrieved on March 2nd, 2007 from: http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/eia1_2005primerM.html
Wikipedia (2007) Oil Price Increases of 2004-2006. Retrieved on March 2nd, 2007 from: http://en.wikipedia.org/wiki/Oil_price_increases_of_2004-2006
Prices: Benchmark and Price Discovery Mechanism. Retrieved on March 2nd, 2007 from: http://r0.unctad.org/infocomm/anglais/gas/prices.htm
Wilson, Mark and Antonelli, Angela. Overtaxed at the Pump: What’s Behind the High Gas Prices. The Heritage Foundation. Pp.1.