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Cause and Effect - US Gasoline Prices 2013

Cause and Effect - US Gasoline Prices 2013

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ASP released a “Perspectives” paper last April entitled, “Cause and Effect: U.S. Gasoline Prices.” With the latest increase in gas prices, ASP decided to update the paper to reflect changes in the market.

This paper examines the causes of America’s soaring gasoline prices. The paper underscores that the price of gas is intimately interconnected with crude oil prices, which are set by global markets. The paper cautions that although America’s oil production has surged in recent years, it has not lowered gas prices.

Instead, our dependence on oil leaves us vulnerable to price swings due to geopolitical events around the world. America cannot look for short-term solutions to what is a clear long-term problem. America is critically dependent upon oil for its economic well-being and the only solutions are long-term methods to reduce the amount of oil we use across the country.

In brief:

Gasoline prices are very closely correlated with the price of crude oil.
Oil prices, in turn, are tied to events largely outside of America’s control.
Oil prices depend on the interplay of supply, demand, and the perception of future changes in supply or demand.
The only way to reduce our vulnerability to spikes in oil prices is to use less of it
We cannot “drill our way” out of this challenge
ASP released a “Perspectives” paper last April entitled, “Cause and Effect: U.S. Gasoline Prices.” With the latest increase in gas prices, ASP decided to update the paper to reflect changes in the market.

This paper examines the causes of America’s soaring gasoline prices. The paper underscores that the price of gas is intimately interconnected with crude oil prices, which are set by global markets. The paper cautions that although America’s oil production has surged in recent years, it has not lowered gas prices.

Instead, our dependence on oil leaves us vulnerable to price swings due to geopolitical events around the world. America cannot look for short-term solutions to what is a clear long-term problem. America is critically dependent upon oil for its economic well-being and the only solutions are long-term methods to reduce the amount of oil we use across the country.

In brief:

Gasoline prices are very closely correlated with the price of crude oil.
Oil prices, in turn, are tied to events largely outside of America’s control.
Oil prices depend on the interplay of supply, demand, and the perception of future changes in supply or demand.
The only way to reduce our vulnerability to spikes in oil prices is to use less of it
We cannot “drill our way” out of this challenge

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Categories:Types, Research
Published by: The American Security Project on Feb 07, 2013
Copyright:Attribution Non-commercial

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www.AmericanSecurityProject.org1100 New York Avenue, NW Suite 710W Washington, DC
Cause & Eect:U.S. Gasoline Prices
Andrew Holland and Nick Cunningham
February, 2013
IN BRIEF
•
Gasoline prices are very closely correlated with the price o crude oil.
•
Oil prices, in turn, are tied to events largely outside o Americas control.
•
Oil prices depend on the interplay o supply, demand, and the perception o uture changes in supply or demand.
•
Te only way to reduce our vulnerability to spikes in oil prices is to use less o it.
•
We cannot “drill our way” out o this challenge
Current Gasoline & Oil Prices
•
Te national average price o a gallon o regular unleaded gasoline in February, 2013is $3.60
•
In 2012, gas prices ranged rom $3.32 to $4 per gallon - a 68 cent swing,demonstrating price instability 
•
Gas prices have increased 22 cents in the last two weeks, a 6.5% rise.
•
Gasoline prices oen ollow a cyclical pattern, rising in the Spring, peakingin the early Summer, and alling through the autumn.
•
Te spot price o crude oil traded at a price o between $88 and $128 per barrel(Brent) in 2012.
•
As o February 2013 crude prices have risen to $117 per barrel the highest since Sep-tember 2012.
•
Te 2012 spike in prices was dierent rom recent spikes because, unlike in 2008(peak o $4.11/gallon) and 2011 (peak o $3.96/gallon), in which prices increased by over 30% in just 6 months, prices were already high; there has only been an 8% growth
 
2
 AMERICAN SECURIY PROJEC
since October, 2011.Te price o gasoline is dependent on the
global
price o crude oil.Te price Americans pay at the pump closely ollows the trend o the world price o crude oil, as this graphshows. World prices in turn are inuenced by the global interaction o supply and demand as well as by expectations o how the price may change in the uture.
Even though U.S. production hasspiked by 34% since January 2009,the surge is barely noticeable whenyou look at it compared to the ap-proximately 89 millions o barrelsper day (mbd) currently being pro-duced. Our supply is simply notlarge enough to make a signicantcontribution to world supplies.
 
3
Te surge in U.S. oil production hasalso not led to lower the price o oil.Even though U.S. crude oil productionincreased by an estimated 1.7 millionbarrels per day rom January 2009 toNovember 2012, the price o oil alsoincreased. Tis demonstrates the mini-mal impact that incremental additionsto U.S. production have on global oilprices.Since U.S. production has very lit-tle impact on global oil prices, theefect on gasoline prices is mini-mal. Tis graph demonstrates thatin spite o robust increases in U.S.production, the average price o gashas also risen. Rising U.S. oil pro-duction simply cannot measurably lower the price at the pump.

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