Gasoline Prices Essays - Petroleum Politics, Commodity Markets

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 inter est 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 headquart ers 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