Calvin’s Hub

Ever wondered how come gas prices suddenly started rising incessantly for the past year? What’s really driving the record-breaking gas price we’re having right now? I’ve read a lot of articles online and I think I finally got it.

I’ll try to explain it here as simply as I can without using any historical data, complicated market talk, and all those graphs and charts. I’m also a lousy researcher so I’m afraid I can’t post the sites where I got the information from since all of these are from memory.

OIL IS NOT A RENEWABLE RESOURCE

For the sake of simplicity I will be using oil and gas here interchangeably. Just a short info, crude oil is what’s being sold in the world market and countries spend money to refine them to be used in different ways. Since oil is limited, there’s really no way that its price would stop rising. So why did the price suddenly rose quickly?

SUPPLY AND DEMAND

Yup, there’s your answer right there! It’s as simple as that. Just like any other commodity, if there’s a huge demand and low supply, its price tends to go up. So what caused the sudden rise in the demand of oil that oil producing countries can’t somehow keep up? There are lots of factors actually and it kinda snowballed until we got the price that we have today.

So here are some major factors that’s driving the demand high and the supply low:

• Tensions in oil producing countries. This is the main reason why oil supply is low. Ever since US invaded Iraq, their oil production fell down by 50% and it still hasn’t recovered until now. Outside Middle East, Venezuela has experienced strikes and political turbulence. West Africa is suffering from instability where militants continue to attack oil factories.
• Increase in population and growth of developing countries. Of course there’s the overpopulation problem that automatically drives the demand for more oil. Not to mention that China and India are growing at a rapid rate which equates to more demand for oil. Bicycles are being exchanged for automobiles.
• Devaluation of the US dollar. This is what local oil companies are usually telling us when they have to increase the price of fuel. Since oil is traded in dollar, any earnings from the sale of oil may lose value if the dollar continues to weaken.
• Oil factories mishaps and forces of nature. During hurricane season, oil refinery disruptions are common and to compensate, other oil refineries must work overtime while postponing scheduled maintenance. Two big oil refinery explosions (Texas on 2005 and Indiana on 2007) in the US didn’t help either.

Can’t OPEC help? They’re the ones who sets the price right?

Actually, the global market somehow sets the price. Since rich and developing countries such as US, China and India have no problems buying oil at a high price, third world countries like us are the ones who are really suffering.

OPEC is there to limit how much oil its members should produce to keep the price high in a competitive market but not to the point that it would encourage the development of alternative fuels. Bad huh?

I heard gas prices in Middle Eastern countries are only about 10 pesos ($0.30) a liter. How come the big difference?

Well, it’s because their oil companies are government-owned and the prices are kept low as a benefit to the nation’s citizens.

ALTERNATIVE TO FUEL

Why can’t we research on fuel alternatives? Hybrid cars are old, why are they not available here in our country? What about the water-powered car? Or even the electric-powered engines? Where are they?

Well that’s for another post. I still have do more research on those. I hope this post is not that difficult to understand and you finally have an idea what’s the cause of those high fuel price.

Filed under: Think About It