How Oil Prices are Established Did you realize that at our current consumption of crude oil and at our current status of known reserves, we have approximately 40 years of reserves remaining? This is a startling fact when we take into account all the products that are produced from refined crude oil or from its by-products. Many people are aware of the price increases they feel at the gas pump, but has anyone ever considered the cost or investment put forth in finding new reserves? Under the right conditions, oil would sometimes seep up to the surface, but in our times, the search for new reserves is more costly and dangerous. When considering how the price of crude oil and its by-products are determined, one must first look at the …show more content…
Through various news sources, there has been reported an increase in weather occurrences that cause temporary shortages in crude oil production. The largest of these occurrences has been from hurricanes. When a hurricane is reported and the path is determined to cross through offshore oil platforms, all production must be stopped and crews evacuated for their safety. Only once danger has passed, will production resume. This sometimes can be just a few days or longer, depending on if any damage has occurred. In 2005, the Gulf of Mexico experienced two hurricanes that devastated offshore and onshore oil production facilities. Offshore oil platforms were broken from their moorings and driven to shore, and onshore refineries suffered tremendous damage from flooding and high winds. Another weather occurrence that can have a dramatic influence on pricing is the onset of winter. Rather than winter weather causing supply shortages, the demand increases from consumers requiring fuels for heating. However, weather is not the only factor that influences pricing. With most of the known reserves currently producing and slowly depleting, the search for newer sources takes the producers into areas originally thought too harsh or uneconomic to tap. When the oil and gas industry was in its infancy, crude oil could be found in pools on the ground surface. This was caused by cracks in the geological formation. As crude oil is
The consumption of the oil cause changes in the supply and demand. The United States produces 11 million barrels of oil every day. We are one of the biggest countries to have a big influence on the production and prices of the oil. The basic supply and demand theory explains that the if a product is produced more, the cheaper it should sell. If a country were to double the output of oil day, prices would fall and the Production is high, but the distribution of oil isn’t keeping up with the market. The United States builds an average of one oil refinery per 10 years. This is a net loss due to the fact construction has slowed down since 1970s. Since 1970s, the United States has 8 less oil refineries today. The reason why we are not oversupplied with cheap oil is because of the other countries’ higher net margin and the only operate at 62% of their capacity. Excess capacity is only there to meet future demand. With demand moving accordingly, oil prices will continue to be set mostly by the market — despite external players’ best efforts. (McFarlane)
The U.S. should invest in alternatives to oil, and drill on the United States grounds because it will assist the economy, preserve energy and fix the world’s environmental problems. The supply and demand for oil is always on the rise, and problems are contemplated with the use for oil. Those problems are starting to catch up to the modern world, and something needs to change before the world enters a black out. Experts can predict that there is estimated to be somewhere around 61 years of oil left for us to use at our current rate. The demand for oil is always rising. People in today’s modern society rely so heavily on oil, that they would not know what to expect if it
It is estimated that 1.3 trillion barrels of oil reserve is left in the world’s major fields (Institution of Mechanical Engineers 2015). At present rates of consumption this will be enough oil to last approximately 40 years. By 2040, it is intended for production levels may be down to 15 million barrels per day which is approximately 20% of the amount of oil which is currently being consumed (Institution of Mechanical Engineers 2015). It is likely by the year 2040 that the world’s population will be twice as large (United States Census Bureau 2015). Additionally, it is likely that more of the world will be industrialized and therefore more dependent upon oil.
The supply of gasoline to various regions of the United States also plays a significant role. The country is divided into five different regions: Gulf Coast, East Coast, Midwest, Rocky Mountain, and West Coast. Some of these areas do not have enough refineries in their own region to support the consumption and therefore need it brought in. For example, the West Coast has very limited pipeline connections from the other regions. It must rely on water shipments and its small amount of refiners for its supply. If something should happen to the water shipments, i.e. a hurricane, tsunami, etc. it would greatly effect the supply of gasoline.
At some point in everyone’s lives, we are affected by the rising gas prices in today’s economy. Natural gas is not a renewable resource, since there is a fixed amount of it trapped in the Earth. However, many people carry the misconception that there is a very limited amount of natural gas, and that we may use all of it up. This isn’t true. The gas shortages of the 1970's were prompted by the government’s lack of faith in the industry’s ability to discover and develop new reserves, not by lack of gas supply. The unfortunate impression left by the shortages of gas in the 1970's caused the people to believe that there was a small amount of gas left. On the contrary, the gas resource base is vast, and probably even
If a retailer prices its gasoline too high, and without regard to competition, the retailer's customers may take their business to another station with lower prices. If a retailer loses enough volume, the retailer may then reduce prices in order to retain its customers. When more people are on the road, typically in the summer months or during holidays, the price will increase. Crude oil is the greatest contributing factor when it comes to the price of gasoline. The resources it takes to remove it from the ground, then transport it, and then refine it are the factors involved in pricing. The Organization of the Petroleum Exporting Countries has a big part in the price as well in both in the United States and around the world. Speculation of oil commodities can also affect the gasoline market. The second major factor that contributes to gasoline prices is refining. Oil refining is done by heating the oil with steam and only about 40 percent of what remains is gasoline. To produce more refineries must chemically change some of the other products that were produced. Distribution and marketing makes up the remaining 5%. The price of transporting crude oil to a refinery then gasoline to a point of distribution is passed on to the consumer. In addition the price to market the fuel brand is passed on to the consumer as well. Other factors affect gasoline prices such as extreme weather, war or natural disaster in areas where oil is produced can also in turn
The U.S. was supposed to be the world’s new swing oil producer, able to nimbly open and close the taps in response to market forces, thanks to its bounty of shale fields.” In the past a barrel of oil has been one hundred dollars, recently it has dropped to thirty dollars. Though some wells can be profitable at low prices it puts a serious strain on the oil industry as explained in this article.
California has one of the highest gas prices in the United States (Laskoski, usnews.com). However, compared to many developed nations, United States has one of the cheapest gas prices (Hargreaves, CNNMoney.com). Discussion of the reasons gas prices fluctuate is a detailed matter which requires an overview, starting from the extraction of crude oil, chemical processes, regulations, taxes, and gas retail market. The factors that can affect the price at gas station can be categorized into three main categorize including crude commodity prices, technology regulation and taxes, and retail market. As crude oil is the base resource for the production of gasoline (also known as Gas or Petrol, not be confused with Petroleum) its price plays an important
Oil prices in the years 2000-2001 rose due to OPEC's decision to cut the supply of oil that was being produced. Foreign relations with the United States did little to the price increase of
From 2014, the crude oil price has dropped in a sudden since the global economic downturn, oversupply of crude oil and the appearance of new energy. Global economy fatigued, and thus the demand of crude oil was not strong,
The most trivial aspect that affect the price of oil is its quality. This is dependent on its sulphur content and where it is mined oil grades. As a result of these different grades of oil, a limited number of reference, Brent, or benchmark has been agreed on by players in the oil market. This is used to value the price of other grades of oil according to quality. However, this is not applied well in the Middle East countries, Brent is mostly used as standard in Europe according to IPE. In the Middle Eastern region, crude is commonly refer to as the benchmark. This is because it’s available on the spot sales as opposed to being in abundant supply as commonly perceived (Chapman 65).
A lot Scientists and oil field experts have been collecting facts and scientific evidences to try to predict the period at which peak oil will occur. Two of the scientists working toward this discovery are Colin J. Campbell and Jean H laherre. Those two scientists wrote an article about the aftermath s of the 1970 's oil embargo sppured reachees over the decline of oil, which resulted in erroneous conclusions due to various factors (78). In order to truly cast light on the issue of oil decline, Campbell and Laherrère merged a variety of techniques which comprise the examination of “the decline of aging fields” and “the diminishing returns on exploration in larger regions”, the extrapolation of the size
The price of Oil has inflated over the years as the fossil fuel is slowly running out, there has been a rise in prices as supply falls. When a commodity becomes scarce its price will rise. The price has also risen as demand has increased from countries like China who are producing more goods which are demanded by consumers.
All these challenges have economic implications that translate in a price differential. The oil production surplus and the inability to reach external markets already have negative effects on oil prices for Western Canadian
There are two concepts of explaining the inside issue of the energy price crisis, profiteering and refining capacity. Profiteering is a term used to describe oil