The price of gasoline has increased more than 150 percent in the last five years. In 2007, Americans paid on average $3 per gallon for regular unleaded. Today, many are struggling to pay the record setting $4 per gallon, which is why more people are riding buses and selling their sport utility vehicles in exchange for hybrids and fuel-efficient cars.
Some are even waiting in line for hours just to receive a full tank of free gas, a new promotional campaign sponsored by various local radio stations.
Our first pop quiz for this course:
Why has the price of gasoline increased at such an alarming rate?**
1. Who is to blame?
a. President Bush
b. Saudi Arabia
c. Wall Street Investors
d. Congress
e. All of the above
While it may be easy to point fingers at one or more of the above-mentioned players in the oil and gasoline game of LIFE, lets first study the financial facts, which will then allow us to arrive at the correct answer.
Where does gasoline come from?
In America, about 200 million cars and trucks use an average of 390 million gallons of gasoline per day. Gasoline is the main product made from the processing of crude oil. According to the U.S. Department of Energy, crude oil now accounts for 75 percent of the price for a gallon of regular unleaded gasoline. So whenever the price of a barrel of crude oil increases, an increase in the price of gasoline will soon follow.
The Major Producers of Crude Oil
2. Who is the number one producer of crude oil?
a. Saudi Arabia
b. China
c. United States
d. Venezuela
e. None of the above
Contrary to popular belief, Russia is the world's largest producer of crude oil, followed by Saudi Arabia, the United States, Iran and China. The Organization of Petroleum Exporting Countries (O.P.E.C.) is an oil cartel of 12 countries whose main purpose is to influence the price of oil. The organization currently produces roughly 45 percent of the world's crude oil. It meets to conduct a conference twice a year to decide whether to increase or decrease its oil production.
The result of O.P.E.C.'s decisions at the conference can successfully influence the price of crude oil globally, which directly affects the price of gasoline. In 2007, O.P.E.C. generated revenues of approximately $673 billion from selling crude oil worldwide.
How much oil does the U.S. consume and who are our major suppliers?
The entire world consumes nearly 82 million barrels of crude oil per day. The U.S. alone consumes roughly 25 percent of that total, the equivalent of 21 million barrels per day, and produces approximately 6 million barrels of crude oil per day. The remaining 15 million barrels per day needed for consumption is either purchased or imported from foreign countries. By far, the U.S. is the largest consumer of crude oil and gasoline in the world.
So who are the top suppliers of crude oil to the U.S.? In 2007, Canada was the top supplier, selling roughly 2.5 million barrels of crude oil per day to the U.S., followed by Saudi Arabia, Mexico, Nigeria and Venezuela, respectively.
How has crude oil raised the price of gasoline?
The price for a barrel of crude oil has skyrocketed more than 300 percent over the last five years. In 2003, the average price for a barrel was $30, and at the end of 2007 was a whopping $120. Some economist claim the increase is due to basic supply and demand.
Take developing countries like China and India who are now using more crude oil for building new factories, constructing roads and highways, and driving - now that an emerging middle class is able to buy automobiles for the first time.
China has become the second largest consumer of oil behind the U.S. and is therefore competing with the U.S. and the rest of the world to obtain more. The economic laws of supply and demand tell us that the only way to decide who gets the crude oil is to keep raising the price and observe which country is still willing to pay the highest price to obtain the oil, and that is exactly what O.P.E.C is doing.
In the next issue, Oil and Gasoline Prices 102, we will report on President Bush's control of oil and gas prices, the role of various players, and finally answer the question of who is to blame?
Create Wealth, Enjoy Life!
James “Bird" Guess
President & Founder
School of Money & Wealth
James “Bird" Guess graduated college with dreams of climbing the corporate ladder and becoming a prominent financial executive. But after only working a year in “Corporate America", James grew bitter of the politics and bureaucracy associated and decided to venture out on his own to become a full-time entrepreneur.
With a repossession and other unpaid debts on his credit, James had a negative net worth. Starting with only $1,000 saved from college, he single-handedly built a quarter million dollar apparel business from the trunk of his car. Shortly thereafter, his business model would transition from retailer to wholesaler of apparel, which generated $750,000 dollars in revenue.
James could now take one step closer toward financial freedom. As an entrepreneur, he has bought and sold over $1.5 million of apparel. He now uses his financial acumen to help individuals, entrepreneurs, businesses and investors create wealth in their lives! James is now the President & Founder of BlacBird Investments LLC. http://www.BlacBirds.com & http://www.theblackeconomy.com
Create Wealth! & Enjoy Life!
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