The world’s oil supplies are effected by the single largest entity, the Organization of the Petroleum Exporting Countries (OPEC), which is a consortium formed by 13 countries. These countries are: Algeria, Angola, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.
According to the Energy Information Administration (EIA), together, these 13 nations are responsible for 40 percent of the world’s oil production and they hold the majority of the world’s oil reserves.(source: EIA). Whenever OPEC desires to raise the price of crude oil, it simply reduces production. This causes gasoline prices to surge because of the short supply, and also because of the probability of future reductions. When oil production drops, gas companies become worried. The mere threat of oil reductions can give a rise to gas prices.
In April 2001, OPEC decided to reduce its collective production by one million barrels per day. Due to this decision made by OPEC on May 14, 2001 American consumers faced a rise in gas prices, the prices hits an average height of $1.71 per gallon.
OPEC increased its production in June 2005, the production raised to 28 million barrels per day with an increase of 500,000 barrels per day this causes changes in oil prices. In September 2005, an estimated “spare output” of 2 million barrels per day was made available by OPEC to all of its member countries. However, in November 2006, OPEC again reduced its rate of production by 1.7 million barrels per day. This was done to keep the price from falling below $50 per barrel (Source: Joint Economic Committee). For the second quarter of 2008 OPEC’s production was an average of 36.87 million barrels per day (source: EIA).
Other than OPEC, there are many other countries that are contributing to the world’s crude-oil supplies, which include the United States, Mexico, Canada, Equatorial Guinea, Russia and China. In April 2008, the United States imported approximately 1.8 million barrels of crude oil per day from Canada (source: Energy Information Administration). OPEC keeps the record of the oil production of these nations and then adjusts its own production accordingly to maintain its desired barrel price.
Causes and Effects of Gas Prices
Numerous forces can have their effect on the price of gas at the pump, but fuel costs are only one part in the vast web of global economics. Gas prices also have their impact on other parts of the economy as well. Now you already know about the immediate effects of rising prices that feeling of stunned disbelief as the numbers climb and climb while you fill your tank. There are secondary effects as well. You might not go on a long road trip because doing this the gas would cost too much. When you have to decide to buy a car, you might not choose a gas-guzzling SUV and find something with better mileage instead.
Let’s look at the bigger effects of these gas prices on economy. Does a increase in gas prices lead to inflation in the overall economy? Yes, it could do that, as long as the increase is a steady, long-term rise in prices. Expensive gas merely means that now it would be expensive to ship products by truck, drive long distances and fly in airplanes. All those costs mean the cost of virtually any product you can think of will surge if gas prices stay high.
However, economists don’t think that gas prices are a leading indicator of inflation. The price of oil, along with food costs, can change unexpectedly this means that, they are easily influenced by things like weather, labor strikes and wars. The costs fluctuates, sometimes goes up and sometimes comes down, it depends on world events. To analyze inflation, economists keep an eye on the core Consumer Price Index, which is a measure of the cost of certain goods, like DVD players, hotel rooms or college textbooks; this CPI (Consumer Price Index) stays more stable in the short term.
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