Why Are Gas Prices So Low?

Joe Moskal
Staff Writer ’16
Who would have ever thought it would happen again, $1.50 for a gallon of gas. Most of us here are new drivers and haven’t ever seen prices this low. While these prices benefit our pocketbooks for the time being, we need to understand what these low prices are doing to the oil industry both at home and abroad. To understand the low gas prices we must comprehend the fact that gas prices are directly correlated to oil prices with relatively low deviation from one another, in other words, when oil prices down gas prices will follow. Any minor deviations in price most likely occur during the refining process, ergo only affect oil and gas’s price deviation in the short term. Here are the 3 main reasons as to why oil prices are as low as they are:
1. OPEC (Organization of the Petroleum Exporting Countries)
OPEC is a cartel 13 nations that have a large percentage of their exports being petroleum products. They come together to control prices in the market, this practice is illegal within American boarders but is unregulated in the international market. Recently in an attempt to stamp out America competition the cartel has flooded the market with oil and increased its production quote. Translation: they are driving down process by over supplying the market, in an attempt to defend and increase global market share.
2. Increased American Production
Domestic production has almost doubled in the past several years, this forcing imports to the U.S. to find a new home. Now that the U.S. can export oil the market will inevitable become further flooded. In simple economic terms the problem of oversupply is worsened with the increased U.S. production.
3. Decreased Chinese Demand
With the volatile financial markets in China, long term growth patterns need examined to look at the decreased demand. These patterns make clear that Chinas growth rate has slowed to the slowest point in recent years and demand for oil is tanking. This brings about simple economic principals, once again, demand is lower so prices will be lower.
In conclusion, oil prices are low because of simple economic principals, the lower demand for oil, and the increased production of oil. This is being done, in most part, artificially by OPEC, when the cartel feels in has consolidated the market to its liking, it will stabilize the market. The question is when this will happen? Although for now, let’s just appreciate the low prices.