What is Causing the Falling Gas Prices?

By Nate Proell on February 2, 2016

Many would agree that being a college student is a lot of fun; some even say it is the best time of your life. However, there is one major obstacle that every student must face and that is the financial burden that being a college student can have. College tuition is very expensive and that is why saving every penny where you can is important, which is why the low prices of gas per gallon right now is very pleasant to college students.

It was not very long ago where gas was nearly $5.00 a gallon. Now the national average for a gallon of gas is less than $2.00. According to Kris Dawsey, an economist at Goldman Sachs, last year consumers spent $370 billion on gas. Since then gas prices have been falling for the past 6 months and the amount consumers have saved is equivalent to a $75 billion dollar tax cut.

So what is contributing to the fall of gas prices? The truth is that there is not one single person in government or one single company that is controlling how the price for gas is determined. Rather, it is a series of circumstances that contribute to the overall price of gas per gallon. The short answer is free market economics, through fracking.

Fracking is a way of extracting oil out of rock in the form of drilling. It is how the U.S. is getting oil and getting lots of it. Because of fracking the U.S. has taken over Saudi Arabia as the worlds largest oil producer. According to the latest 2014 BP PLc’s Statistical Review of World Energy the U.S. was producing 1.6 million barrels of oil per day in 2014. The report also indicated that because of the high volume of oil being produced in the U.S. imports of oil were down 7.3 million barrels of oil per day, since 2005. The report indicated that global oil consumption in 2014 grew 0.8 barrels per day; however, global oil production grew more than twice that amount to 2.1 million barrels per day.

Naturally, when supply outweighs demand the price for the product drops and that applies to oil as well. The average for dated Brent in 2014 was $98.95 per barrel, which is a decline of $9.71 per barrel in 2013 and also the first time a barrel of dated Brent has cost less than $100 since 2010. In terms of crude oil, the price of a barrel of crude oil plummeted from over $100 a barrel in mid 2014 to around $50 a barrel by the end of 2014. Currently the price of a barrel of crude oil is $33.62 and the price of a barrel of Brent oil is $34.74, both prices are significantly less than the prices they were at in 2014, which can be attributed to the continuing increase in oil production that is outpacing the demand.

According to the U.S. Energy Information Administration latest 2014 data, crude oil and lease condensate proved reserves increased to 39.9 billion barrels, which is an increase of 3.4 billion barrels, or 9.3 percent, since 2013. For six consecutive years U.S. proved reserves of crude oil and lease condensate have risen and exceeded 39 billion barrels for the first time since 1972. 2014 was the fourth highest year on record. Texas added 2.1 billion barrels of crude oil and lease compensated proved reserves, which was the largest increase of any state in 2014. The second largest increase was North Dakota at 0.4 barrels of crude oil and lease compensated proved reserves.    

 Gas prices are low and any American who pays for gas would like it to stay that way. If the current trends of oil supply greatly outweighing the demand continue then Americans will continue to enjoy the luxury of fairly cheap gas prices.

 

 

 

 

 

 

 

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