The U.S. has enjoyed the recent gas prices, but they may hike up again. An explanation for the drop in oil prices, simply put, is that there is more oil than is needed, a higher than normal supply and a lower than normal demand.
The cause of this oil price drop is due to a few factors. America has oil fields in North Dakota, Texas, and other areas that have been producing more; and OPEC has sold the same amount of oil for a decade, 30 million barrels a day, but it is other oil-producing nations, non-OPEC producers selling oil that have increased the market with 7.5 million barrels a day.
Abdalla El-Badri, Secretary General of OPEC, stated “We are not the cause of the oversupply, so we are not cutting.” In the U.S., families will pay $750 less on gasoline than last year. Badri also stated that he just wants to have a meeting with non-OPEC producers.
This will not last, because when asked how long these prices will last Badri said “I don’t know… but I am sure the price will rebound.” Right now, oil cost per barrel is $45 to $50. According to Claudio Descalzi, chief executive of Eni, Italian multinational gas company, said oil could rise to $200 a barrel by 2020.
The decision has to be made whether people want to pay less at the pump or less on their taxes. In the U.K., prices of gas are nine dollars a gallon with seven dollars going to taxes. The current U.S. gas prices are less than $2.50 a gallon with the tax on it 18.4 cents per gallon this tax has remained the same for nearly 22 years.
Apparently, the U.S. needs to figure out how to pay for the roads that Americans drive on. Senator Bob Corker, Tennessee Republican, supports increasing the gas tax by 12 cents. Corker says “So it’s revenue neutral, but at least it would put out our infrastructure on a strong footing.” Revenue neutral meaning other taxes would go down while this one goes up. The proposal was not accepted because it is still a possibility.
The U.S. highway trust fund will fall $100 million short by May. While nothing is off the table just yet, the senate is looking at all possibilities to finance the U.S. highway system.
Right now the average cost per gallon is $2.25 with the proposed tax prices would be $2.37 per gallon, given that the supply and demand does not change. A tax price increase would not be the sole purpose for a hike. This would have more to do with supply and demand.
Ali Majedi, Iran’s deputy oil minister from 2013 to 2014, a non-OPEC producer, blames the extremely low oil prices on Saudi Arabia for wielding oil as a political tool. Both Saudi Arabia and OPEC denied it. Majedi says “Political factors should not be employed.”
According to Paul Hornswell, analyst for a Standard Chartered, he agree with Majedi, through saying important decisions need to be made about the disciplinary action through lower oil prices by Saudi Arabia to the non-OPEC producers. Hornswell mentioned an exit procedure needed to be made by Saudi Arabia. The seizing of alleged punishment to the non-OPEC producers would mean that gas prices would be back to normal.
By Jacob Dowd
Photo by Mike Mozart – Flickr License
Photo by Ben W – Flickr License