GasolineGasoline AndAnd PricePrice ControlControl Janet Ng EEP 142 Spring 05 CurrentCurrent U.S.U.S. RetailRetail GasolineGasoline PricesPrices 4/11/2005 4/18/2005 4/25/2005 Change from Change from week ago year ago States California 2.592 2.584 2.565 -0.019 0.441 Colorado 2.269 2.244 2.217 -0.027 0.386 Florida 2.296 2.277 2.263 -0.014 0.448 Massachusetts 2.172 2.152 2.187 0.035 0.438 Minnesota 2.121 1.997 2.033 0.036 0.272 New York 2.311 2.304 2.309 0.005 0.42 Ohio 2.22 2.066 2.156 0.09 0.376 Texas 2.157 2.131 2.119 -0.012 0.444 Washington 2.442 2.476 2.478 0.002 0.478 Source: Weekly U.S. Retail Gasoline Prices, Regular Grade, 2005 CurrentCurrent U.S.U.S. RetailRetail GasolineGasoline Prices,Prices, contcont’’d.d. Source: Weekly U.S. Retail Gasoline Prices, Regular Grade, 2005 ReasonsReasons forfor IncreasingIncreasing GasolineGasoline PricesPrices OPECOPEC’’ss ShortShort SupplySupply –– bbigig oiloil companiescompanies operateoperate atat tighttight supplysupply andand monopolymonopoly prices.prices. DecreaseDecrease inin U.S.U.S. crudecrude oiloil productionproduction –– productionproduction averagedaveraged 5.45.4 millionmillion barrelsbarrels perper dayday (bbl/d)(bbl/d) duringduring thethe firstfirst tenten monthsmonths ofof 2004,2004, waswas nownow atat 5050--yearyear lows.lows. U.S.U.S. CrudeCrude OilOil ProductionProduction Source: United States Country Analysis Brief, 2005 ReasonsReasons forfor IncreasingIncreasing GasolineGasoline Prices,Prices, contcont’’d.d. StrongStrong consumerconsumer demanddemand -- demanddemand increasedincreased atat nearlynearly 9.29.2 millionmillion bbl/dbbl/d overover thethe lastlast fourfour weeksweeks inin 2004,2004, exceedingexceeding 20032003’’ss demanddemand byby nearlynearly 0.50.5 millionmillion bbl/d.bbl/d. OtherOther factorsfactors -- insurgentinsurgent attacksattacks onon oiloil pipelinespipelines inin thethe MiddleMiddle East,East, andand aa refineryrefinery explosionexplosion nearnear Houston,Houston, Texas,Texas, inin latelate MarchMarch disrupteddisrupted thethe supplysupply chain.chain. 19731973’’ss OilOil CrisisCrisis ReasonsReasons forfor 19731973’’ss OilOil CrisisCrisis StrongStrong consumerconsumer demanddemand -- 36%36% ofof energyenergy consumptionconsumption waswas inin foreignforeign oiloil inin 1973;1973; whilewhile itit hadhad beenbeen 22%22% onlyonly inin 1970.1970. PoliticalPolitical ReasonsReasons -- thethe WatergateWatergate scandalscandal ofof PresidentPresident RichardRichard NixonNixon andand thethe devaluationdevaluation ofof U.S.U.S. dollar.dollar. AA growinggrowing tensiontension betweenbetween U.S.U.S. andand ArabArab countriescountries -- ArabArab--IsraeliIsraeli conflictsconflicts andand thethe YomYom KippurKippur War.War. OPECOPEC’’ss decisiondecision -- reducedreduced supplysupply andand raisedraised oiloil prices.prices. 19731973’’ss OilOil CrisisCrisis -- SomeSome DataData ImportsImports ofof oiloil toto U.S.U.S. droppeddropped fromfrom 66 millionmillion inin SeptemberSeptember 19731973 toto 55 millionmillion inin subsequentsubsequent months.months. TheThe priceprice perper barrelbarrel roserose 130%130% byby DecemberDecember 1973.1973. OilOil embargoembargo endedended inin MarchMarch 18,18, 1974;1974; butbut OPECOPEC continuedcontinued toto raiseraise oiloil prices.prices. OilOil PricePrice ChronologyChronology Source: Energy Information Awareness Graph of Oil Prices 19791979’’ss (Second)(Second) OilOil CrisisCrisis ReasonReason forfor 19791979’’ss OilOil CrisisCrisis TheThe IranianIranian RevolutionRevolution -- anotheranother shockshock camecame inin 19781978 toto 19791979 whenwhen thethe newnew ShahShah ofof IranIran cutcut offoff oiloil production.production. GovernmentGovernment’’ss ActionsActions TheThe U.S.U.S. GovernmentGovernment setset maximummaximum pricesprices forfor gasolinegasoline inin 19731973 andand 19791979 inin responseresponse toto thethe decreasedecrease inin thethe supplysupply ofof gasolinegasoline byby OPEC.OPEC. AA priceprice controlcontrol (and(and rationing)rationing) werewere imposedimposed onon gasoline;gasoline; dealersdealers soldsold gasgas onon aa firstfirst--comecome--firstfirst-- servedserved basis.basis. PricePrice ControlControl onon GasolineGasoline RentRent DissipationDissipation SellersSellers couldcould capturecapture somesome ofof thethe nonnon--exclusiveexclusive incomeincome by:by: CuttingCutting thethe businessbusiness hourshours -- provideprovide dayday--timetime serviceservice insteadinstead ofof 2424--hourhour service.service. LoweringLowering gasolinegasoline qualityquality -- sellsell gasolinegasoline ofof lowerlower octaneoctane rating,rating, whichwhich incurincur aa lowerlower productionproduction cost.cost. ReducingReducing servicesservices providedprovided withwith thethe gasolinegasoline -- changechange fromfrom fullfull--serviceservice toto selfself--serviceservice oror nono--service.service. DemandDemand maymay bebe lowerlower duedue toto thethe aboveabove measurersmeasurers andand totaltotal dissipationdissipation reduces.reduces. NoNo PricePrice ControlControl inin CurrentCurrent PeriodPeriod DeadweightDeadweight lossloss oror rentrent dissipation.dissipation. RisingRising gasolinegasoline pricesprices leadlead toto economiceconomic growth?growth? ExampleExample ofof GermanyGermany inin thethe 1990s.1990s. GermanyGermany facedfaced aa crudecrude oiloil priceprice increaseincrease ofof 211%211% betweenbetween thethe fourthfourth quarterquarter ofof 19981998 andand thirdthird quarterquarter ofof 2000;2000; sheshe experiencedexperienced economiceconomic growthgrowth withwith fallingfalling unemploymentunemployment andand inflation.inflation. OurOur ActionsActions CarpoolCarpool -- savessaves moneymoney andand helpshelps reducereduce traffictraffic congestioncongestion andand pollution.pollution. UseUse publicpublic transportationtransportation -- reducesreduces transportationtransportation costscosts upup toto $1500?$1500? ServiceService thethe vehiclevehicle regularlyregularly -- improvesimproves mileage,mileage, reducesreduces emissions,emissions, improvesimproves vehiclevehicle safety,safety, andand addsadds yearsyears toto thethe lifelife ofof aa car.car. ChooseChoose aa fuelfuel--efficientefficient vehiclevehicle ifif possible.possible. ConclusionConclusion AA fallfall inin oiloil priceprice willwill happenhappen onlyonly ifif wewe havehave aa decreasedecrease inin demanddemand andand anan increaseincrease inin supply.supply. AcknowledgementsAcknowledgements EIA.EIA. WeeklyWeekly U.S.U.S. RetailRetail GasolineGasoline Prices,Prices, RegularRegular GradeGrade.. 2005.2005. 66 MayMay 20052005 <http://<http://www.eia.doe.govwww.eia.doe.gov// oil_gas/petroleum/data_publications/wrgp/mogas_hooil_gas/petroleum/data_publications/wrgp/mogas_ho me_page.htmlme_page.html>.>. ----------.. UnitedUnited StatesStates ofof AmericaAmerica.. 2005.2005. 33 MayMay 20052005 <http://<http://www.eia.doe.gov/emeu/cabs/usa.htmlwww.eia.doe.gov/emeu/cabs/usa.html>.>. Eland,Eland, Ivan.Ivan. HaveHave 1,0001,000 U.S.U.S. SoulsSouls DiedDied forfor Oil?Oil?.. 2004.2004. 33 MayMay 20052005 <http://<http://www.independent.orgwww.independent.org// newsroom/newsroom/article.asp?idarticle.asp?id=1362>.=1362>. WikipediaWikipedia.. EnergyEnergy CrisisCrisis.. 2005.2005. 22 MayMay 20052005 <http://<http://en.wikipedia.org/wiki/Energy_crisisen.wikipedia.org/wiki/Energy_crisis>.>..