Supply and Command
A brief update on current oil prices and the factors behind them.
The median price of gas in Flagstaff is $2.45, cheap as a gallon of milk. Over six years ago during summer of 2008, gas hit record highs in the United States with prices in some areas surpassing four dollars. The price of gasoline is fickle, needing only small disturbances on the other side of the world to affect the price at the pump.
Before Paul Beamer and his father Jack pour unleaded gasoline into a service station’s well, they load their product from the Kinder Morgan terminal in Phoenix. Before the oil pours out of Kinder Morgan’s pipeline at a speed of seven miles per hour, the oil is refined and processed in New Mexico, Texas, or California. Before that, well, the crude oil could have been pumped from the ground here in the United States, or it could have been shipped by railcar from Canada or Mexico, or it could shipped on a tanker from Africa, Venezuela, or the Persian Gulf.
Paul and Jack Beamer distribute Shell gasoline across Flagstaff. Few people are asked about the price of gas as often as the Beamer family. “The reason people don’t complain about the price of tea is because they don’t burn it in their cars,” Paul Beamer says. Paul’s father Jack Beamer has only one answer for any question about gas prices, whether they are at all-time highs or all-time lows, “supply and demand,” he says confidently.
Both supply and demand are constantly changing each day. Oil’s current low price point can be attributed to many things.
Supply has risen. Canada has expanded its oil exports significantly over the past decade. Canada has massive reserves and is currently the largest source of crude oil — unrefined oil — in the U.S. The U.S. has also increased its oil production despite softened demand on account of the recent recession and slow economic recovery. Production using shale oil in North Dakota along with the controversial hydrolic fracturing “frakking” method of oil and natural gas extraction.
In order to stay competitive, Saudi Arabia and other countries in the Persian Gulf have hastened production and inundated the oil market. Financial experts don’t expect their rapid production to continue much longer. The International Monetary Fund (IMF) estimates that Saudi Arabia needs oil to be about $90 a barrel in order to just to keep current on financial obligations. Many financial analysts assume Saudi Arabia is trying to deflate the price of oil in order to drive U.S. and Canadian shale oil companies out of business. Currently, the price of oil-per barrel is around 55 dollars, and changing by the second.
