Monday, February 28, 2011

Libya & gas prices

Currently, Libya is having a political battle in its country. The oil industry analysts believe that if this political unrest spreads to the other high density oil producing countries, the crude oil production may go haywire, causing gas prices to become $5.00 a gallon by the summer of 2011. The biggest fear is of an uprising in Iran, OPEC’s second biggest oil producer. As a result of the problems in Libya, West Texas Intermediate Fuel has declared that their price per barrel of oil will increase by 5% in April 2011, reaching $94.30 per barrel. Currently there is a “fear premium," which has caused gas prices to rise by $10.00 a barrel. However, once Libya becomes less violent, the prices could drop. Based on 2010 gas prices, gas prices have increased by 20%. As well as the unrest in Libya, the growing U.S. economy, an increase in oil demand in the spring, and an increase in demand by China are all contributing factors that are speculated to increase gas prices to between $3.75 and $4.00 per gallon. However, when gas becomes too expensive, Americans will demand less, pressuring gas prices to decrease. There are also speculations that this large increase in price is unlikely, as we will not know until it happens.

The problems that are occurring in the Middle East can definitely affect gas prices in the United States and all over the world. Since the Middle East is the largest gas supplier, their decisions can affect us deeply. As for now, gas prices are increasing, which makes it seem as though gas prices will only get worse if Libya does not get back into a comfortable state. I do not think Libya will settle down any time soon, however, it is too premature to say that gas will be $5.00 in the summer of 2011, because we are unaware of the events that are still to come. However, who is to say that gas will be $5.00 per gallon, rather than $10.00 per gallon. It is scary to think about: however, it is hard to know the reality of the situation when there is not enough information to back up rising gas prices. If there is a decrease in supply, then the demand in the U.S. will remain the same until prices become so high that they are not affordable.
--Karyn Hawley

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