Economic Article Analysis – Why the Price of Filling Up Has Been Going Down

The article was done by the US News group that tackled the issues of drop in the oil prices within the United States of America. The article tried to give a number of reasons as to why the oil prices have been on the downward trend despite the fact that the American population keeps growing on a daily basis. Moreover, the article tried to demystify the belief among citizens that any time there is war and conflicts in the Middle East, then oil prices would definitely shoot up. Another factor that is tackled within the article is the increase in the level of competition between companies that have emerged as oil sellers and oil marketers. There are those who have joined the market with a reason of not making profits but just to offer services to the citizens. That has resulted in a drop in the number of cartels and monopolists who would otherwise want to exploit the innocent citizens.

Apart from the mentioned factors above, there is also the issue of economic growth within te universe. The slow rate at which the economies are growing creates a certain impact on the oil prices. For instance the economic growth of the European economy is taking place at a very slow rate, almost zero or even negative rates. The same applies to the American market that is growing at a very slow rate as compared to how it did in the past. Even those from the east like Japan are not left behind in the menace; moreover, their economies are contracting as compared to the others that are growing but at a slow rate.

In most cases, fuel is normally under high demand during the summer driving season, but once that season is gone, the demand for oil normally reduces. The reduction in demand for fuel prices would automatically affect the oil supply in the country in a negative way. Under such circumstances, the suppliers would shy away from supplying their oil since they would be bound to make losses. What the suppliers do in such times is that they mix the various types of fuels so that the most expensive types are mixed with the less expensive types. Such a move is normally employed so that the suppliers minimize the chances of making extreme losses if that were to happen.

The production of energy power is also another reason as to why the demand for crude oil has been on the downward trend. Areas such as Texas, Midwest and Pennsylvania have in the past taken the role of producing energy power that is in most case used instead of crude oil. Therefore that has resulted in a severe drop in oil prices within the last three to four years. For instance, gasoline prices had been trading for $ 120 two years ago, but the current prices have gone down to reach an all time low of $ 96.

The demand for oil in America can be said to be inelastic because even though the prices are going down, the demand does not increase. On the contrary, the prices are decreasing on a daily basis but the demand for oil is also reducing. Crude oil for example has been trading at very cheap prices, and experts predict that the prices will further decrease in to the future.

US News. Web. http://www.usnews.com/news/articles/2014/09/23/demand-drops-supply-surges-and-gasoline-prices-plummet. Accessed 7 January, 2014.

 


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