The Effects of the Increase of Oil Prices
Since the mid-19th century oil has become the world’s most important source of energy.
Through crude oil, fuel oil and gasoline are produced. Oil’s raw material is also used in many of
our everyday products such as plastics. For every 50 gallons of oil you can yield 23 gallons of
gasoline, 13 gallons of diesel, 7 gallons of jet fuel, 2 propane, and 8 gallons of lubricants and
plastics.i The dramatic increase in oil prices has not only affected gasoline prices but also many
of our everyday products that are essential for everyday living.
In 1870 John D. Rockefeller and partners created Standard Oil Co., which by 1878 had
achieved virtual monopoly over U.S. oil production. In 1911 the U.S. Supreme Court declared
Standard Oil an “unreasonable” monopoly and ordered it be broken up into 34 independent
companies with the average price of oil per barrel ranging from $15-$20.ii
Though there are well over 100 refineries within the United States, the U.S. imports oil
from over 10 countries. According to the Energy Information Administration's data sheet, the
top ten countries that the U.S. imports from are Algeria, Angola, Brazil, Canada, Iraq, Mexico,
Nigeria, Saudi Arabia, United Kingdom and Venezuela; also the U.S. imported over 4,900,000
billion barrels a year of crude oil even though it produces more than 6,120,000 billion barrels
annually. Since the terrorist attacks of September 11th and the occupation of Iraq by the U.S., oil
prices have incrementally increased. The increased oil prices seem unstoppable as news reports
surface each day of even higher prices. Oil prices are currently priced at over $100 a barrel.iii
Some industry analysts believe that if the nuclear tension continues between Iran and the U.S.,
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Iran’s output of oil will decrease. This decrease in output combined with steady demand for oil
can potentially raise oil prices even higher. Currently Regular gas in New York is priced from a
low of $4.09 to a high of $4.50, while Diesel fuel ranges from $4.99 - $5.00. If the tension in Iran
or even Iraq were to escalate and the supply of oil was restricted, then New Yorkers and other
Americans can expect much higher gasoline prices, perhaps in the 6-7 dollar range.
According to different newspaper articles like The Washington Post and Business World,
oil prices have risen due to politics and tension over Iran, Iraq, Nigeria, and Venezuela. Although
tension in those areas is responsible for higher oil prices, they are not the only reason for
higher prices. The Washington Post says that the value of the American dollar also plays an
important role in the increase oil price. Because Crude oil is quoted in dollars, European and
Japanese importers can still buy oil for relatively the same or lower prices in their own
currencies. Since the value of the dollar has decreased it has meant that more units of currency
or dollars are needed to purchase oil in the U.S. On the other hand, importers have found their
currency value has now increased thereby offsetting some of the high oil price. The inflation
that is hurting the U.S. economy makes the price of foreign goods much higher, which leads to
reduction in foreign spending. Foreign retailers then have had to increase prices to make up for
the lower volume further aggravating the problem. In order to protect themselves from further
slides in the value of the dollar some many people are beginning to acquire currency from
different countries. In an article written by Rob Walker of The New York Times, the different
currencies purchases consist of Euros, Canadian dollars, British pounds, Brazilian reais, Indian
rupees and Viking Index CD’s made up of Norwegian, Danish and Swedish currency. There are
even stores within the United States that accept foreign currency. “Over the last year through
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mid-January, the dollar has depreciated about 9 percent against the euro, 10 percent against
the rupee and 12 percent against the Chilean peso,” according to Jay Bryson of Wachovia as
quoted in a Times article by Michelle Higgins. Keith Bradsher writes in The Times, that “The
dollar could fall further if developing countries’ central banks stopped supporting it, particularly
in Asia.”
Aside from gas prices reaching a new high, the increased price of oil has affected
consumers in other areas. According to Financial Mail, a South African magazine, this increase
affects the production prices of chemicals, plastics, pain, rubber, and so on. They also stated
that as oil prices fluctuate, so too will the prices of many products and foods that people might
use on a daily basis such as rice, eggs and milk. Much of the food that we consume is
transported to us by either, planes or trucks. The increased transportation costs due to fuel
prices are passed down to us directly in the food we eat by higher costs. The increased price of
food and gasoline leave less room for consumers to spend on other things. Consumers are
cutting back on a lot of their spending because they are spending more money to fill up their
tanks. This affects many consumers because not all consumers have a reliable alternative in
public transportation. Without such options, commuters are forced to buy the expensive gas to
meet basic transportation needs like going to work or shopping at a big box retailer. Even if
more people decided to use public transportation, it would mean more over crowded trains
and delays.
Consumers are not the only ones who suffer from inflation. U.S. businesses and
countries that export products to the U.S. are also affected. China is one of the countries that is
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affected due to inflation. According to the USINFO.STATE.GOV website, though the U.S. exports
products to China, China’s exports to the U.S. are much greater. Countries like China suffer
because they produce many of the products sold in the U.S. like toys, electronics, apparels and
accessories. The reason why the U.S. imports products like these is because it is cheaper to buy
them from countries like China than produce them in the U.S. When inflation occurs,
consumers spend less money on these products which reduces the amount that are imported
which can eventually affect China’s revenue.
Small businesses and even some larger companies that rely on vehicles are also
affected. Because gas has become so expensive, small businesses are forced to raise prices for
their services, which in return affect the amount of revenue they receive. Another area affected
are the food aid services provided by the state to help feed the poor people, which means that
more people are at risk of being hungry. Riots have already broken out in other countries due
to the increase in food prices.
Since the price of oil has increased greatly within the past couple of years it is important
for us to look for ways to become less independent on oil as our only energy source and even
less independent on foreign oil. There are currently different energy sources such as
geothermal, solar, wind, wave and biofuels. Geothermal energy is generated by heat from
within the earth. The heat and steam produced can be used to heat buildings and generate
electricity. Solar energy comes from the sun’s rays. The sun’s rays can also be used for heat and
electricity. Wind can also be used as a source of energy through windmills and is a gas-free
energy source. Biofuel is fuel composed from any organic matter that is burned and turned
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into energy. Biofuel can be made from almost anything from plants to waste. Ethanol is another
source of energy that is on the rise. It is a type of biofuel. Ethanol is a type of alcohol that is
derived from sugar cane or corn and is also more environmentally friendly. Ethanol is a great
alternative but it also creates other problems. Since ethanol is made from cane or corn, the
prices of these foods will increase. Farmers that primarily use corn to feed livestock will also
have to increase prices on their products.
There are many effects of high oil prices on us. Most of the effects are negative but
there are still some positives. High oil prices have led to efforts by the private and public sectors
to decrease our dependence on oil. Solar and wind power are now attractive alternatives to
energy sources, something that was never considered when oil prices were low. These new
alternatives have led to investment of millions of dollars in new technology aimed at reducing
fuel consumption.
Companies like General Motors and Toyota Motor are currently developing more hybrid
cars. Hybrid cars run on a combination of gas and electricity. Martin Magida from the Daily
Deal writes in an article dated March 31, 2008 that “Billions of dollars annually are invested in
the alternative-energy space and are expected to continue their ascent as the price of oil
escalates, technologies improve, and market share grows. Now is the perfect time for
companies and investors to look deeper at the amount of capital going into the industry. The
current capital is inadequate to support the kind of expansion that is needed to make the
alternatives mainstream.”
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Though there is hope that gasoline price will eventually drop it is unlikely that it will
return to what it use to be just a few years ago especially with the increased demand of oil. The
increased price of oil has affected just about everyone. In order to move forward we must
continue to find ways of not only conserving energy but try to use more alternative energy
sources and make it available for everyone.
i
“How do they do it.” How gasoline is delivered to the pumps. Discovery Channel. 8 May 2008
ii
“The History of Oil Prices.” The Toronto Star. 3 Jan. 2008:599. Lexis Nexis Academic. LaGuardia Community
College Library. Long Island City, NY. 9 May 2008. <http:www.lexisnexis.com.rpa.laguardia.edu:2048/us/
inadacemic/search/homesubmitForm.do>.
iii
“The History of Oil Prices.” The Toronto Star. 3 Jan. 2008:599. Lexis Nexis Academic. LaGuardia Community
College Library. Long Island City, NY. 9 May 2008. <http:www.lexisnexis.com.rpa.laguardia.edu:2048/us/
inadacemic/search/homesubmitForm.do>.
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Work Cited
“How do they do it.” How gasoline is delivered to the pumps. Discovery Channel. 8 May 2008
“The History of Oil Prices.” The Toronto Star. 3 Jan. 2008:599. Lexis Nexis Academic. LaGuardia
Community College Library. Long Island City, NY. 9 May 2008.
<http:www.lexisnexis.com.rpa.laguardia.edu:2048/us/
inadacemic/search/homesubmitForm.do>.
“The History of Oil Prices.” The Toronto Star. 3 Jan. 2008:599. Lexis Nexis Academic. LaGuardia
Community College Library. Long Island City, NY. 9 May 2008.
<http:www.lexisnexis.com.rpa.laguardia.edu:2048/us/
inadacemic/search/homesubmitForm.do>.
“Dollar’s Decline Pushes Oil Prices Up.” The Washington Post. 7 March 2008:255. Lexis Nexis
Academic. LaGuardia Community College Library. Long Island City, NY. 9 May 2008.
“Oil Price. Oil affects more than just petrol.” Financial Mail (South Africa). 10 Aug. 2007:240
Lexis Nexis Academic. LaGuardia Community College Library. Long Island City, NY. 9 May
2008
“Almighty Dolor.” The New York Times. 11 May. 2008:787. Lexis Nexis Academic. LaGuardia
Community College Library. Long Island City, NY. 9 May 2008. <www.lexisnexis.com/us/
Lnacademic/delivery/Printdoc.do?fromCart=false&dnld>
“Special Report:Oil and Mining Industry;Tamer oil prices seen this year despite recent upticks.”
Business World. 5 March. 2008:1776. 29 May 2008
“It’s Not Just Petoleum, All Imports Cost More.” The New York Times. 17 May 2008:510
Lexis Nexis Academic. LaGuardia Community College Library. Long Island City, NY. 29
May 2008.
“GM, Toyota in race to produce hybirds.” National Post’s Financial Post & FP Investing (Canada).
9 Jan. 2008:283.Lexis Nexis Academic. LaGuardia Community College Library. Long
Island City, NY. 29 May 2008
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