Oil and Gas PricesOil and Gas 2There are many issues that cause the cost of oil and gas to increase. The main contributing issue to the increasing cost of oil and gas is supply and demand, when demand is greater than supply, the price of oil and gas will increase. The factors that affect supply include increased demand, problems with refineries and pipelines, and disruption to supply or threat of disruption to supply.With the increased demand for oil in the United States and other countries such as India and China; the extra demand for oil has put enormous pressure on available oil reserves. The Energy Information Administration stated, “If refinery or pipeline and/or reductions in imports cause supplies to decline unexpectedly, gasoline inventories (stocks) may drop rapidly. This may cause wholesalers to bid higher for available supply over concern that future supplies may not be adequate” (Energy Information Administration, 2008, para. 9). With this in mind, the other underlying factors that affect supply are disruption to supply or threat of disruption to supply along with The Organization of Petroleum Exporting Countries (OPEC).
The Organization of Petroleum Exporting Countries is an organization of oil producing countries which produces over 40% of the world’s crude oil and has two-thirds of the world’s oil reserves. This organization was formed in 1960 to regulate the supply of oil and to some extent, the price of oil. The organization includes Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, and Venezuela. Mouawad, J. stated, “The cartel has refused to pump more oil, fearing that any hasty move would lead to plummeting oil prices” (Mouawad, 2008 para. 19). With OPEC refusing to increase production and reserves being depleted, a conflict or threat of conflict can be an issue of concern.If there is a conflict or threat of war or conflict with the chance of a disruption in production in an oil producing country will cause oil and gas prices to increase. The most recent conflict that disrupted production is the attacks on the pipelines in Nigeria that caused Royal Dutch Shell to decrease exports due to damaged pipelines. Another recent conflict was the exports from Iraq being disrupted by Turkish and Kurdish forces.
With these issues increasing the cost of oil and gas, consumers have to deal with the effects as well.With oil and gas prices steadily increasing with no relief in sight, consumers have had to cope with the many adverse effects of high oil and gas prices. There are many adverse effects of increasing oil and gas prices that consumers have to cope with such as a change in lifestyle, change in shopping habits, and some drastic effects that include not paying utility or vehicle bills leaving some consumers with little options for getting to work. With the increasing oil and gas prices, consumers are left with less expendable income.Consumers are changing their lifestyle, shopping habits, and driving habits. Consumers are left changing their lifestyle by staying home more; therefore, they are eating out at restaurants less, cutting back on entertainment such as nights out at the movies. Consumers are finding themselves combining trips for errands which include paying bills, medical trips, and grocery shopping. Consumers are also making the decision of not travel long distances for vacation or decided on not taking a vacation altogether.
These effects have consumers looking for alternative ways of travel and more fuel economical vehicles. Mouawad, J., & Navarro, M. stated, “Americans have started trading their gas guzzlers for smaller cars, making fewer trips to the mall and, wherever possible, riding public transportation to work” (Mouawad & Navarro, 2008, para. 7). These effects have consumers making adjustments to how they shop.With consumers being left with less disposable income they have changed their shopping habits by shopping online to save money on fuel by not leaving their home to go shopping. Consumers are finding themselves looking for and purchasing sale items whenever possible, purchasing bargain brand items instead of name brand items and shifting their automobile purchases towards vehicles with high fuel economy and away from the large SUV type vehicles which get less gas mileage. Some consumers have traded their SUV`s for smaller more fuel economical vehicles like the hybrid models and some have bought motorcycles.
With consumers in large suburban areas dealing with these effects, rural America is struggling with the effects of the increasing cost of oil and gas. In rural areas such as Mississippi, New Mexico, Montana, Wyoming, and North and South Dakota where consumers incomes are much lower and jobs are scarce, who mostly depend on pickup trucks and vans for transportation are going to extremes in order to cope with the high cost of gas. These effects have rural consumers borrowing money from their employers to help pay for the gas to get to work resulting in less money on payday, and changing jobs for shorter commutes. Some rural consumers find themselves hiring friends and family to drive them for errands due to their family or friends vehicle getting better gas mileage, requesting buyouts from their employers, not making electric or vehicle payments, and some have gone as far as giving up meat so they can buy fuel.Indealing with these kinds of effects, rural consumers have made the difficult decisions of changing their job for a shorter commute or moving closer to urban manufacturing jobs.
Krauss, C. said. “Dick Stevens, president of Consolidated Catfish Producers, said that 10 workers walked into his office and volunteered to take a buyout rather than continue commuting from Charleston, Miss., 65 miles away” (Krauss, 2008, para. 24). With consumers continuing to cope with the effects of the ever increasing cost of oil and gas, businesses, both large and small are trying to adapt to the changes.