June 30, 2013
Oil and Gasoline Prices in the US
Oil and gasoline prices follow a trend that sparks mixed reactions from different industry stakeholders in the America’s economy. The trends on oil and gasoline and their stability have immense impact on the performance of the economy based on their primary as energy. The government’s ability to ensure stability in price movement is seen as a key step towards fostering steady economic growth. A variety of factors are at play in the determination of these trends exhibited by the oil prices in America. Some of these factors are attributable to the market forces and understanding them would be instrumental in resolving economic problems resulting from the surging oil prices.
In 2011, oil prices were reported to have reached a record high placing the rise of Brent crude oil’s price at 70% relative to expected market prices (Yellen 1). Although the oil price increase was coupled with a rise in prices of non-fuel commodities, its high increase can be viewed as an indicator of the oil prices instabilities, which would be detrimental to the economy. Confirming the normal trend in oil prices, a report by the US Energy Information Administration (EIA) has revealed a rise in oil and gasoline prices in the onset of the year 2013, which suggested that the rise was not to be viewed as abnormal (US EIA 2). While oil prices began rising in December 2012, its only been attributed to a new phenomenon in market behavior that usually characterizes the first half of every year.
Oil prices push inflation rates a notch higher during the seasons characterized by the price surges. Echoing the Federal Open Market Committee’s Report, 2011, Yellen affirms that the consumer inflation rates increased reflecting the high oil and gasoline prices that were experienced in the season (Yellen 1). This inflationary force is characterized by increased transportation costs, reduced discretionary spending as a result of high gas prices and higher freight charges that are justified by increased fuel prices (Federal Reserve Districts 3). The surge in oil and gasoline prices has shown that consumers are at the receiving end since producers and manufacturers are known for trickling down the cost of energy to consumers. Exploring the Energy Concern from a Demand-Supply Perspective
From an economic perspective, the price of a commodity is determined by the interaction between its demand and supply levels. When the demand exceeds supply, commodity prices are likely to rise unless there are government intervention policies such as price ceilings. The high prices of oil and gasoline in the American markets are attributable to many factors citing the demand and supply interactions of the oil and gasoline markets. The US EIA views the price fluctuations as being predictably seasonal owing to the various activities that characterize the industry as seasons change (US EIA 1). For instance, the demand for fuel rises depending on weather conditions where warmer spring and summer seasons may indicate reduction in prices. This is because the warm weathers are characterized by more drivers on the roads who push demand for fuel up. With the supply of oil stagnating during where fewer people need to drive based on poor road conditions and the possibility of holiday seasons.
The increase in crude oil has also been linked to the surging oil demand from the emerging economies, notably China. Yellen argues that the emerging markets of the world have considerably contributed to the pressure on the oil supplies thereby causing the prices to increase (Yellen 3). While most third world economies suffered the 2008 economic turmoil, their recovery has been faster compared to the recovery witnessed in developed nations. The emergence of China as a major oil consumer has increased the pressure on oil supplies opening a new target market. Yellen argues that the rise of China has...
Cited: Federal Reserve District. “Current Economic Conditions.” Federal Reserve Systems. (2013): Web. 27 June 2013.
US Energy Information Administration (EIA). Petroleum & Other Liquids. EIA, 2002. Web. 27 June 2013.
US Energy Information Administration. Today in Energy. EIA, 2013. Web. 27 Jun.2013.
Yellen, Janet. “Commodity Prices, the Economic Outlook, and Monetary Policy.” Federal Reserve Systems. 11 April 2011. Web. 27 June 2013.
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