While supply and demand affects oil and gas prices, the United States and surrounding countries may be suffering economically due to their intense dependence for crude oil. The effects on our economy today are somewhat extreme. Population growth combined with current unemployment rates have temporally brought on a recession.
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According to Dictionary. com (2010) “ a recession is defined by a significant decline in activity spread across the economy, lasting longer than a few months. ” Over the past 20 years our economy has seen the effects of both recession and economic growth. Many of the changes we face today are because of several factors, but the most influential could be oil and gas prices. The United States does not stand alone on the inflation of gas prices though surrounding countries are trying to cope as well. High oil prices are of significant importance to the world’s economy, and can cause adverse reactions. Although most economies have become adaptable over the years, countries are still trying to find ways to deal with these changes.
Oil and gas prices rise or fall daily and global demand is growing as well. Although the United States was once a major exporter of oil, today it relies on foreign exporter to supply most of their oil needs. The United States exports oil from Canada, Mexico, Saudi Arabia, and Venezuela, just to name a few. These foreign countries supply the United States with 60 percent of their oil needs. The other 40 percent comes from such states as Alaska, Texas, and California.
In such cases of an emergency, such as a hurricane, the United States maintains an oil reserve. According to Amadeo (2010) “ The U. S. uses 20% of the world’s oil” (para. 6). The amount used for transportation is two thirds of the worlds oil and this includes what oil is used for heating during the winter months in the 20 percent. Europe accounts for 15 percent of the world’s oil consumption with China following at 10 percent. Federal and state taxes plus distribution costs affect how much we pay per gallon we pump into our vehicles.
The United States federal gas tax is 18. 4 cpg, cpg stands for cost per gallon. States taxes can range as high as 32. cpg. According to About.
com (2010) ( ‘ Crude oil accounts for 55% of the price of gasoline, while distribution and taxes influence the remaining 45%”). Ten or even 20 years ago gas prices were not that high. In 1980 the price for a gallon of gas was a dollar twenty five and in 1990 the price was a dollar sixteen a gallon in the United States. Today we face gas prices from around two dollars and forty five cents to three dollars a gallon. In 2008, gas prices topped out at almost four dollars a gallon in the United States. Yes, gas prices have come down since 2008, but the effects of high gas prices still influence the United States economy. Americans have learned to cope with this inflation by cutting down their spending. Other countries though are dealing with even higher gas prices today, Amsterdam, Netherlands pays six dollars and forty eight cents a gallon, London, United Kingdom pays five dollars and seventy nine cents a gallon and Dublin, Ireland pays four dollars and seventy eight cents a gallon, just to name a few.
Imagine the effects that rising prices may have on their economy as well. Other countries that are oil exporters possibly do not suffer as much from the high gas prices like the rest of the world. If we lived in Cairo, Egypt for example the price of gas is sixty five cents a gallon or Lagos, Nigeria where gas is thirty eight cents a gallon. Although no one in the United States would complain about paying 65 cents or 38 cents for a gallon of gas but think about the effects on that country.
The truth is the thirty eight cents a gallon those countries pay might not look like much to us but to them it would be just like our three dollars a gallon. Due to the value of money in third world countries, what looks like just pocket change to us would be like paying a small fortune to them. For countries like Egypt and Nigeria, their prices are low for a reason. Because their oil is produced by a government owned company, these companies do not increase their prices because lower prices benefit their nation’s citizens.
According to Terrell (2008) “ A change in price can be a result of inflation, taxes, changes in supply and demand, or any combination of the three” (para. 2). Inflation in gas prices can be defined by supply and demand, economic growth, seasonal demand, and the decline in the American dollar. First, supply and demand, oil and gas prices can increase or decrease depending on the supply of oil and the demand. In its Supply and Demand Overview section, The Price of Fuel.
com stated; “ The marketplace forces of supply and demand determine the price of fuel. If demand grows or if a disruption in supply occurs, there will be upward pressure on prices. ” Incredibly the United States demand for oil has gone up greatly over the past few years. The United States consumed 3. 28 billion barrels of gas in 2008 alone. At that time the demand went up and so did gas prices. Second, economic growth, when a country has a population increase oil and gas demand increases.
If a country has an increase in industries, the demands for oil increases again making prices fluctuate. According to the United States Census Bureau (2009), “ in the year 2000 the United States population was 281, 421, 906 nine years later the population grew to 307, 006, 550. ” Therefore the U. S. population increases yearly by 0. 9%.
With population increases every year the demand for oil increases and prices follow accordingly. The third reason for gas price increases is seasonal demand, during the winter months, the demand for oil or gas decreases making prices go down. Although gas is still used for heating in the United States it does not affect the lower prices during the winter. During the winter months, however, gas prices will go up due to the holidays. Every year around Thanksgiving and Christmas we can expect to see higher gas prices because the demand for gas increases.
During the summer months the demand for gas and oil goes up again making prices rise. The rise in prices is due to summer vacation and outside summer activities such as boating. Last, the reason for inflation is the decline in the dollar.
The United States dollar declines when it loses its value in relationship to foreign currencies. The United States dollar declined by 40 percent between 2002 and 2008. The shrinking value of the United States dollar influences the price we pay for imported oil.
The sudden increases and decreases in gas and oil prices have certainly taken its toll on the United States economy. Americans are struggling today just to survive and although gas prices are making things somewhat harder on us, there are ways we can save a little money. In today’s society everyone owns a car, and we use them even for the simplest tasks. American’s drive everywhere they need to go whether it is a half a mile or a hundred miles. With the gas prices as high as they are, more money goes into gas tanks than goes into wallets.
To save a little money and cut down energy costs, carpooling or taking the bus is an option, or maybe eve riding a bicycle. The truth of the matter is gas prices are not going to stay the same and people have to prepare themselves to deal with higher prices at some point. Just by cutting down the unnecessary trips here and there that people take could make the gas in the tank last a little longer. By carpooling a few days a week to work, people could definitely save some money. If driving is the only option, keep the tires inflated properly, this helps to obtain more miles per gallon. Keeping a vehicle tuned up properly and the wheels aligned will possibly give you better gas mileage also. Another thing people can do is roll the windows down, stop running the air conditioner all the time. Yes, this sounds awful but you can save gas by not running the A/C all the time.
Buying gas during the coolest part of the day will save you a little money as well. Gas is measured by volume so when the temperature rises the volume of gas does too. Filling your tank during the early morning or late evening allows you to get more gas for your money. Just be sure not to over fill the tank or even fill it to the top doing so will result in leaking or spilling over when traveling up hill. Try driving the speed limit and avoid rush hour traffic if possible. Driving your car at a steady pace, not slowing down or speeding up, often improves gas mileage. Today’s economy is learning to adapt to the changes in gas prices.
Inflation will continue in today’s society just as populations will continue to grow. As a country that has faced recession in the past, American’s have adapted well to economic changes. The small steps taken daily to cope with the economic strain will only make our economy stronger.
ReferencesAmadeo, Kimberly. (July 14, 2010). How oil prices affect gas prices.
Retrieved July 17th, 2010, from About. com website U. S. economy. about. com/od/supply/oil_gas_prices. htm Gas prices around the world. CNN money.
(March 2005). Retrieved June 23rd, 2010, from money. cnn. com/pf/features/lists/global_gasprices/ Richardson, Leslie. (2009). Republican and Herald. Drivers feel pinch from rising gas prices, volume 1, page 1. Retrieved June 24th, 2010, from republicanherald.
com/news/drivers-feel-pinch-from-rising-gas-prices The price of liberty. (April 30th, 2008). Retrieved July 2nd, 2010, from www. thepriceofliberty. org