ECON 545 Project 1
Business Economics GM545-10496,
September 2013
Everyone’s Gasoline Problem Retail gasoline prices fluctuate largely due to crude oil prices and supply and demand. Demand for oil is high with an ever-increasing demand in the United States and throughout the world, supply and production is limited and due to the ongoing debate on offshore drilling for new wells control of gasoline prices appear to be unattainable. (2) Crude oil prices are determined by worldwide supply and demand, which is why as countries around the world developing rapidly, the demand for and price of gas increases rapidly. Natural disasters and Political conflicts in major oil producing regions such as Saudi Arabia, Iran and Iraq can also affect the price of gas. The Organization of Petroleum Exporting Countries (OPEC) also has significant influence over the price of crude oil because its members produce over 40% of the world’s supply of oil and own more than two-thirds of the world’s estimated oil reserves.(2)
Proximity of Supply States further away from the Gulf Coast (where almost half of the gasoline in the U.S. is produced) see an increase in oil cost due to the fees added on for transportation of the gas from the oil refinery. Due to the distance the oil has to travel the West Coast and Rocky Mountain regions usually pay more for gas. (2)
Competition
Points of distribution also effect gas prices, areas with multiple distribution points compete for business thereby constantly trying to drop or match the gas price by mere pennies on the dollar(2). In large cities such as my hometown Chicago, prices are higher due to Illinois tax rate causing some Illinois residents to travel to a neighboring cities/state with lower taxes and better gas prices such as Hammond, IN. Chicago area average gas price is currently $4.09 per gallon while its neighboring city Hammond, IN is paying $3.62 per gallon. The current USA average price per gallon is $3.58. (3)
September 2013
Everyone’s Gasoline Problem Retail gasoline prices fluctuate largely due to crude oil prices and supply and demand. Demand for oil is high with an ever-increasing demand in the United States and throughout the world, supply and production is limited and due to the ongoing debate on offshore drilling for new wells control of gasoline prices appear to be unattainable. (2) Crude oil prices are determined by worldwide supply and demand, which is why as countries around the world developing rapidly, the demand for and price of gas increases rapidly. Natural disasters and Political conflicts in major oil producing regions such as Saudi Arabia, Iran and Iraq can also affect the price of gas. The Organization of Petroleum Exporting Countries (OPEC) also has significant influence over the price of crude oil because its members produce over 40% of the world’s supply of oil and own more than two-thirds of the world’s estimated oil reserves.(2)
Proximity of Supply States further away from the Gulf Coast (where almost half of the gasoline in the U.S. is produced) see an increase in oil cost due to the fees added on for transportation of the gas from the oil refinery. Due to the distance the oil has to travel the West Coast and Rocky Mountain regions usually pay more for gas. (2)
Competition
Points of distribution also effect gas prices, areas with multiple distribution points compete for business thereby constantly trying to drop or match the gas price by mere pennies on the dollar(2). In large cities such as my hometown Chicago, prices are higher due to Illinois tax rate causing some Illinois residents to travel to a neighboring cities/state with lower taxes and better gas prices such as Hammond, IN. Chicago area average gas price is currently $4.09 per gallon while its neighboring city Hammond, IN is paying $3.62 per gallon. The current USA average price per gallon is $3.58. (3)