OIL PRICES

Rising Gasoline Prices And Its Causes

Rising Gasoline Prices And Its Causes

Introduction

Beginning with the status of oil as a nonrenewable resource, this paper will discuss the nature of the global demand for oil and will offer the factors which are giving rise to higher oil prices. It will also deal with socioeconomic processes (including the processes of price making, market maintenance, and state formation) within which the price of oil determined. In the process, a general political economy framework developed to explain why the increases in the price of oil may not result in the changes in production technologies and consumption patterns that are necessary to move beyond petroleum.

1. What is driving the gas price up?

The world oil prices have increased tremendously during the last few years. International oil prices are now well over $100 a barrel and there is ambiguity about their future directions.

There are a number of reasons as to why the international oil process is increasing and one of them is the creation of OPEC. One of the prime reasons for the quadrupling of prices was owing to the cartel created by OPEC. OPEC (Organization of the Petroleum Exporting Countries) is a global organization of eleven countries, which depend on their revenues from oil exports as their chief means of income. OPEC's eleven members supplied about 40% of the world's oil output, and now have more than 3/4 of the world's total proven crude oil reserves (Yeomans, 2004).

Today, our highly industrialized, and predominantly capitalist, world economy continues to be heavily dependent on this nonrenewable energy source. More important, even if one were to take the price of oil into account, one would have to do so by acknowledging that historically, it has never been determined in competitive markets and that it has not been growing along an efficient extraction path. On the contrary, the long-run secular path of the price of oil reflects either the fall in costs brought about by technological progress or the various historical transformations and shifts in the market structure and the geopolitics of global oil production (Roncaglia, 2003).

Let us leave aside for a moment the fact that the price of oil has historically been determined through oligopolistic arrangements (even when the buyers and sellers refer to spot and futures markets); and let us ask whether the windfall profits of the oil industry (shared between the oil-producing petrol-states and their NOCs and IOCs) invested in the research and development of viable alternatives to oil. Historically, petrol-dollars extended as credits to developing countries (leading to the debt crises of 1980s), have enabled exploitation of more high-cost offshore fields (thereby delaying the need to develop alternatives), used to finance military buildups (the Middle East became the leading consumer of weapons and military equipment), used to invest in different business lines (example., the “financial sector” in Dubai, the “knowledge economy” in Qatar), and invest in financial markets (Davis, 2006).

Finally, in the past three decades, in part overdue to more eloquent exploration technologies and part due to the ...