Gas and the U.S. Economy


    This month, the summer traveling season begins in the United States. With May's warmer weather, longer days, and the Memorial Day holiday, there are more drivers on the nation's roads--and at the gas pumps. Experts forecast that U.S. consumers will use more than 391 million gallons of gas per day this summer. Gas prices have already risen in recent months, and they may rise even higher as more people begin to travel. The U.S. Department of Energy predicts that gas prices may be 20 cents more per gallon than last summer.
    Consumers are starting to complain about the high prices. "This is getting ridiculous," said one car driver about the $2.12 price for a gallon of gasoline in San Jose, California last month. The price had jumped 13 cents in just a couple of days.

    Why are gas prices in the United States likely to be higher than ever this summer? Several factors influence gas prices. They include the cost of crude oil and the cost of refining crude oil.

    Crude Oil
    Gasoline is made from a nonrenewable natural resource called crude oil, or petroleum. Petroleum means "rock oil." The oil is trapped within and between underground rocks. The cost of crude oil is a major factor in the cost of gasoline. The price of crude oil has risen by about $7 per barrel (42 gallons) since the beginning of the year, and the price of gas has risen by over 15 cents a gallon.

    The United States is one of the largest crude oil producers in the world. It has about 22 billion barrels of oil reserves, underground oil that has not yet been pumped. Most U.S. oil is found in Texas, Alaska, California, Louisiana, Oklahoma, and the Gulf of Mexico. The United States uses so much oil, however, that it must buy half of its oil, about 12 million barrels a day, from other countries.

    About 40 percent of the world's oil comes from a group of 11 oil-producing countries. This group is called the Organization of the Petroleum Exporting Countries (OPEC). It includes countries such as Saudi Arabia, Nigeria, Venezuela, Iraq, Iran, and Kuwait. OPEC countries have about three-quarters of the world's oil reserves. OPEC tries to control the price of oil by producing less oil when they want the oil price to rise higher and producing more oil when they want the oil price to go lower. Last month, OPEC announced it would cut its production of oil by one million barrels per day. It remains to be seen whether OPEC will cut production by this amount and whether the cut will affect U.S. gas prices.

    OPEC's decisions have affected U.S. gas prices before. For example, the group decided to stop selling oil to the United States in protest of U.S. support of Israel during the Arab-Israeli "Yom Kippur" War in 1973. As a result, U.S. oil and gasoline prices tripled. Drivers had to wait in long lines for gasoline due to gas shortages.

    Oil Refineries
    The cost of making gasoline also affects its price. Oil refineries refine crude oil into gasoline. It costs refineries more to refine gasoline today than it used to. That's because new laws, such as the federal Clean Air Act, require refineries to make cleaner-burning gasoline. This gas causes less air pollution. However, it's more expensive to produce, and this cost is added to the price of gasoline.

    Refineries in different regions add different chemicals to their gasoline to make it less polluting. In Midwestern states, refineries use ethanol. Ethanol is made from corn, which grows plentifully in the Midwest. Many other refineries use a chemical called MTBE instead of ethanol. Environmental experts think MTBE pollutes water. This year, California, New York, and Connecticut banned the use of MTBE in gasoline.

    The fact that different regions require different types of gas means that prices can rise suddenly in one part of the country. For example, if a refinery unexpectedly breaks down in California, it can't get extra gas quickly from a nearby region, because California requires a different kind of gas. If the gas supply is suddenly low in California, the price will rise there. Recently, government leaders have suggested that if regions began to use the same kind of gasoline, prices might decrease.

    Gas and the U.S. Economy
    Gas and oil prices affect many parts of the U.S. economy. The United States uses a great deal of oil--one fourth of the world's oil consumption. Most of this oil is used to make gasoline and other fuels. U.S. manufacturers also use oil to make products such as ink, crayons, bubble gum, dishwashing liquids, eyeglasses, records, tires, asphalt, sneakers, rugs, and plastic.

    Economists do not agree about whether the current high gas prices will hurt the recovering U.S. economy. Some are concerned that higher gas prices will make shoppers buy fewer products because they will not drive as much or have as much money to spend at stores. They also say that the rising cost of delivering products (due to higher gas prices) will make products more expensive to shoppers. Others feel that Americans will complain about the price but will not change their shopping or driving habits.

    Some experts think that U.S. consumers should change their habits when it comes to gas and oil consumption. Consumers do not always use this costly resource efficiently. If each consumer used a gallon of gas less per week, U.S. consumption would drop by five percent or 130 million gallons of gas. Consumers could save fuel and money, and also help protect the environment.