Gasoline \"prices at the pump\" go up and down and Oil \"costs per barrel\" go u
ID: 1167809 • Letter: G
Question
Gasoline "prices at the pump" go up and down and Oil "costs per barrel" go up or down, but they do so at different rates and even in opposite directions sometimes. We want to think that demand and supply controls prices where the cost of crude oil is set by the same economic conditions that determine the price of gas. What are these mismatched trends (graphs of each are shown in the following web links) telling us about how demand and supply work in the market? http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPMRU_PF4_Y35NY_DPG&f=A http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=A Gasoline "prices at the pump" go up and down and Oil "costs per barrel" go up or down, but they do so at different rates and even in opposite directions sometimes. We want to think that demand and supply controls prices where the cost of crude oil is set by the same economic conditions that determine the price of gas. What are these mismatched trends (graphs of each are shown in the following web links) telling us about how demand and supply work in the market? http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPMRU_PF4_Y35NY_DPG&f=A http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=A Gasoline "prices at the pump" go up and down and Oil "costs per barrel" go up or down, but they do so at different rates and even in opposite directions sometimes. We want to think that demand and supply controls prices where the cost of crude oil is set by the same economic conditions that determine the price of gas. What are these mismatched trends (graphs of each are shown in the following web links) telling us about how demand and supply work in the market? http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=EER_EPMRU_PF4_Y35NY_DPG&f=A http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=AExplanation / Answer
Relatively low oil prices are part of the problem as well. The cost of producing oil is rising much more rapidly than its selling price. Oil Companies Cut Back on Spending. In fact, the selling price of oil hasn’t really risen since 2011 because citizens can’t afford higher oil prices with their stagnating wages.
The fact that the retail selling price of oil remains flat tends to lead to political instability of oil exporters because they need retail sales to collect taxes required to provide programs needed to pacify their people (food and fuel subsidies, infrastructure, roads, schools, expanded research on new energy sources, water provided by desalination, jobs programs, etc.). Low oil prices make the plight of oil exporters with declining oil production worse, including Russia, Iran , Mexico, and Venezuela. Other nations such as Ecuador, send most of their production to the USA and need the hard currency to support their economies. Strangely of these four nations, the USA has bad relations with Russia, Mexico, Iran, Venezuela and Ecuador. One might think that the U.S. State Department would work on this, and except for Russia, better relations with is very feasible for most of them. Recently, the US and Iran have found common interests in opposing ISIS, and we are hopeful that this may bring a better relationship between these two nations.
Many people when looking at future oil supply concern themselves with the amount of reserves (or resources) remaining, or perhaps Energy Return on Energy Invested (EROEI). None of these is really the right limit, however. The limiting factor is how long our current networked global economic system can hold together. There are lots of oil reserves left, and the EROEI of Middle Eastern oil is generally quite high (that is, favorable). But instability could still bring the system down. So could popping of the US oil supply bubble through higher interest rates or more stringent lending rules.
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