...switching between natural gas and residual fuel oil kept natural gas prices closely aligned with those for crude oil. More recently, however, the number of U.S. facilities able to switch between natural gas and residual fuel oil has declined, and over the past five years, U.S. natural gas prices have been on an upward trend with crude oil prices but with considerable independent movement. Natural gas market analysts generally emphasize weather and inventories as drivers of natural gas prices. Using an error-correction model, we show that when these and other additional factors are taken into account, movements in crude oil prices have a prominent role in shaping natural gas prices. Our findings imply a continuum of prices at which natural gas and petroleum products are substitutes. 1. Introduction For many years, natural gas and refined petroleum products were seen as close substitutes in U.S. industry and electric power generation. Industry and electric power generators switched back and forth between natural gas and residual fuel oil, using whichever energy source was less expensive. Consequently, U.S. natural gas price movements generally tracked those of crude oil. As shown by Yücel and Guo (Energy Journal, 1994), crude oil prices were shaped by world oil market conditions, and U.S. natural gas prices adjusted to oil prices. Over the past 10 years, however, the number of facilities able to switch quickly between natural gas and refined petroleum products...
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...Federal Trade Commission DEBORAH PLATT MAJORAS ORSON SWINDLE THOMAS B. LEARY PAMELA JONES HARBOUR JON LEIBOWITZ Maryanne Kane Charles H. Schneider Susan A. Creighton Lydia B. Parnes Luke Froeb William Blumenthal Anna H. Davis Nancy Ness Judy Maureen K. Ohlhausen Donald S. Clark Chairman Commissioner Commissioner Commissioner Commissioner Chief of Staff Executive Director Director, Bureau of Competition Director, Bureau of Consumer Protection Director, Bureau of Economics General Counsel Director, Office of Congressional Relations Director, Office of Public Affairs Director, Office of Policy Planning Secretary of the Commission Report Drafters and Contributors Louis Silvia, Assistant Director, Bureau of Economics David Meyer, Bureau of Economics Sarah M. Mathias, Office of General Counsel Policy Studies Michael S. Wroblewski, Assistant General Counsel Policy Studies Phillip L. Broyles, Assistant Director, Bureau of Competition J. Elizabeth Callison, Bureau of Economics Jeffrey Fischer , Bureau of Economics Nicolas J. Franczyk, Bureau of Competition Daniel E. Gaynor, Bureau of Economics Geary A. Gessler, Bureau of Economics James F. Mongoven, Bureau of Competition John H. Seesel, Associate General Counsel for Energy Christopher T. Taylor, Bureau of Economics Michael G. Vita, Assistant Director, Bureau of Economics Anthony G. Alcorn, Bureau of Economics Sarah Croake, Bureau of Competition Madeleine McChesney, Bureau of Economics Guru Raj, Bureau of Competition Natalie Shonka...
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...Individual Paper- Gas Prices Petroleum gas affects many of us when it is constantly increasing and decreasing all the time. Over the past few years gas prices have varied from $3.11 a gallon to $3.97 a gallon. Petroleum gas prices do not just affect the companies that provide the product but affects the people of the United States. When gas prices increase it can cause many problems with people getting to where they need to go. Many people cannot afford the prices with jobs they have now, which causes them to miss days of work causing them to lose their jobs. Petroleum gas can affect many people even farmers when it comes time to take care of their crops causing many people not getting the products they need. When all these people cannot afford the prices of gas they tend to change how they are doing these things. For an example farmers not being able to process their crops can cause them to have to have smaller crops. This will lead other products from their crops to rise in prices when it goes to the stores. Market equilibrium in this case refers to a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers (Colander, 2010). The constant changes in gas prices will affect the product itself along with the market and equilibrium prices. When the price in gas increases the demand for the gas will lower due to the amount it takes to fill a person’s...
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...Gas prices have been on a rapid rise the last few years and not many people are happy with it. It limits those on a budget for how much they can do and how much they are willing to drive. Lately, gas prices have been fluctuating in price and going up but are more recently going back down, which gives people a little more flexibility at times in their schedule. It lets people do things such as travel and more, that they were not able to do last summer when gas prices were right around as well as over $4.00 a gallon, which made people cut back on those unimportant things. Supply and demand plays two major factors that have an impact on what we might see gas prices at. Ash says, “Gas prices are expected to continue to drop leading to Election Day and continue to fall through the end of the year (Richardson, 2012).” According to Clifford Krauss, oil experts have been talking about how since Israel and Gaza are not oil-producing areas, that we should not see oil prices spike up and cause us to pay more for a gallon of gas (Krauss, 2012). As gas prices have been steadily increasing, it has had a negative effect on the consumers that use it daily. According to Jim Motavalli, “the main five reasons as to why gas prices have been on the steady rise can be related to demand, global politics, speculation, seasonal, and fuel-efficient cars (Motavalli, 2012).” The seasonal reason really gets to everyone who drives, because gas prices increase in the summer that causes less travel. People...
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...Why Gas Prices are higher in California than in other Parts of US English 123 James L Hicks Embry Riddle Aeronautical University Abstract The rising gasoline and oil prices have become a global concern since petroleum has many uses around the world and yet its prices have continued rising for the last sixty years. This paper sought to find out why gas prices are higher in California than in other parts of America. The literature reviewed showed that West gasoline market dominated by California is defined by tight balance between supply and demand. Other factors found to be contributing the escalating gas price in California include isolation of the state from other refining centers, market conditions including international demand, Wall Street speculation, poor policies leading to uncontrolled oil cartels, decline of oil production during technical failure, political interferences, and increasing prices of crude oil due to demand forces. Despite there being no quick solution to the challenge, temporary measures such as efficient use of the available resource while looking for alternative cheaper source of energy could alleviate the challenge. Why Gas Prices are Higher in California than in Other Parts of US The Rising gasoline and oil prices have today become a world concern (Garrington, 2012). More concerns are raised considering that petroleum is an important product whose price continues escalating for the last sixty...
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...Gasoline is one of the most widely used natural resources around the world. If gas prices were to rise the price of gas in Europe would be approximately five dollars a gallon, an all-time high. In America we would find ourselves in a difficult predicament because we use gas in our vehicles for transportation, to power our stoves for cooking, and to heat homes. Many people will eventually end up in poverty. A mass majority of Americans have to commute daily to get to their job. At five dollars a gallon Americans would be forced to find alternative transportation or change where they live relative to their jobs to save on commuting costs. Many cities whose economies rely on tourism would take a big hit with higher gas prices because people would rather save money by vacationing to a place closer to where they live. Not being able to drive at your own leisure will cause frustration to those who do not enjoy sitting in their home and enjoy traveling. Our number one source of energy for survival is food. When gas prices spike so does the price of food. Not only do we use gas to power our stoves and grills but farmers use it for their machinery and factories that process and deliver our food. Going out to dinner will be a lot more costly than it should be, it will cost extra money to commute across town and with less people willing to do that it will run many businesses into the ground. With jobs being thrown away left and right people will slowly end up in poverty. The first...
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...Oil and Gas Prices Darlene Dant COM 150 In August 2006 the American national average for a gallon of gas was $3.09. Gas prices hit an all time high in July 2008 with a national average of $4.12 per gallon. By December 2008 the national average for a gallon of gas was a mere $1.61 (GasBuddy, 2009). Due to the affect that supply and demand has in combination with state and federal taxes, America has seen significant fluctuations in gas prices. As people say, “What goes up must come down” and, in the oil and gas industry the opposite is also true, “What goes down must come up”. Fuel costs are affected by the world’s oil supply. The Organization of the Petroleum Exporting Countries (OPEC) consists of 12 members from various countries, who are the main suppliers of the world’s oil (OPEC, 2009). According to the Energy Information Administration (EIA [2009]), America gets the majority of its oil from five countries: Canada, Venezuela, Mexico, and Saudi Arabia. There are different grades, or qualities, of crude oil. Two of the most popular grades are: light-sweet crude oil (better grade) and heavy-sour crude oil (lesser grade). Depending on where the oil is coming from, it may be of a better, or lesser, grade compared to that of another country. The most desirable crude oil is light-sweet crude oil. While easily obtained in the past, light-sweet crude oil is becoming less available, causing an increase in price (Wagner, 2008). While light-sweet crude oil may have...
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...Gas Prices and the Economy The marketplace of supply and demand determines the price of fuel. If demand grows or if supply decreases, there will be an increase in pricing. On the flip side, if demand declines or if there is a surge in supply in the market, there will be a decrease in pricing. If a retailer in the market prices its gas too high without regard to competitors’ pricing, consumers will take their business to the competitor with lower prices. If the retailer loses enough business due to higher pricing, they will lower the prices to be more competitive in order to retain customers. Retailer competition affects gas pricing which can be seen by price differences on stretches of highway with multiple gas retailers. More choices generally mean more competition for the retailers. Even though many retailers carry the gasoline of major oil companies, they are independent dealers of the product and can set prices as they wish. The cost of foreign trade is contributes to the rising cost; however, many other factors contribute to the pricing of gasoline which drastically affects buyers and sellers in the marketplace. According to the Chevron Corporation, like agricultural products, such as wheat and corn, and precious metals, such as silver and gold, crude oil is traded on the world market. Recently, crude oil prices have risen dramatically, driven by rising global demand and political instability in several oil producing countries (“The Price of Fuel…”). Since crude...
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...January 2015 Current Gasoline Prices The supply of gasoline is largely determined by the price of oil. The price of oil can be affected by both supply and demand. Things that affect the supply of oil include wars, terrorist attacks, industrial accidents, weather near offshore drilling rigs and the actions of oil cartels such as OPEC. If any of these things interfere with the supply of oil, it may cause the price of oil to rise, and therefore cause the price of gasoline to rise. In the current state, the market is flooded with oil supply and manufacturing seems to keep on producing. When the market is flooded, the gas prices fall, as in our current case, fall drastically to numbers we haven’t seen in years. We have not seen a decline this drastic since the 1980’s. Demand also affects the price of oil. Increasing demand for oil by developing countries such as China and India can cause prices to rise. Financial speculators can also influence the price of oil. They do this by buying oil in anticipation of future gains in the price of oil. If many speculators buy oil, the oil price will rise rapidly. These occurrences will increase the price of gasoline. If the price of gas falls, consumers spend less of their money on gas. Consumer incomes do not vary at the same rate as gas prices. The price elasticity of demand for gas is very low, so demand for gas will remain fairly constant, even for large changes in the price of gas. The most important impact the price of gasoline has on the economy...
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...How Crude Oil Prices Affect Gas Prices Crude oil prices make up 71% of the price of gasoline. The rest of what you pay at the pump depends on refinery and distribution costs, corporate profits, and Federal taxes. Usually, these costs remain stable, so that the daily change in the price of gasoline accurately reflects oil price fluctuations. (Source: EIA, FAQ, December 6, 2013) It usually takes about six weeks for oil price changes to work their way through the distribution system to the gas pump. Oil prices are a little more volatile than gas prices. This means oil prices might rise higher, and fall farther, than gas prices. Historical Oil and Gas Prices: Oil and gas prices have been especially volatile since the 2008 financial crash. Here's a look at their peaks and valleys, and what caused the price swings. * 2014 - Prices remained around $100/barrel. That's because the U.S. has plenty of shale oil. 2013 - Oil rose swiftly to $118.90/barrel on February 8, sending gas prices to $3.85 by February 25. Prices had started rising earlier than normal thanks to Iran's threatening war games near the Straits of Hormuz. What Causes High Oil Prices?: Like most of the things you buy, oil prices are affected by supply and demand. More demand, like the summer driving season, drives higher prices. There is usually less demand in the winter, since only the Northeast U.S. uses heating oil. However, oil prices are also affected by oil price futures, which are traded on the commodities...
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...Financial Econometrics Modeling and Forecasting Natural Gas Prices Abstract In this project we will model and forecast the natural gas prices over the short-term through the development of the Error Correction Model (ECM). This is presented as the best predictive model among various alternatives. To build this model, we gathered the oil prices to analyze the impact of the changes in these prices on the changes in natural gas prices. The results of the forecasting exercise, carried out using the US Natural Gas 3 Months Strips series, suggest that the forecasting approach can be used to obtain a performance measure for the price. Key words: ARMA; ECM; Cointegration; Forecasting; Natural Gas Prices; Oil Prices. JEL Classification: G17 Index 1- Introduction – The Natural Gas ............................................................................................................... 3 2- Theoretical Framework ............................................................................................................................ 4 3- Empirical Model ....................................................................................................................................... 5 3.1- Methodology – the data .......................................................................................................... 5 3.2- The Model ................................................................................................................................ 6...
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...Gas prices need to stay low and remain constant over the course of a year. Whenever gas prices rise so does everything else from groceries to goods. As prices rises families are left with smaller budgets for everything else they require for everyday living. The local economy can be altered by an increase in gas price as well resulting in a slower economy flow. Gas should remain at an average reasonable price based on the local community and average wage. Whenever gas prices rise I notice it the most in common grocery stores. Milk can fluctuate from a dollar to almost 3 times that price. Why are groceries affected by something like gas? Well stores stock goods from all around the country. In order to do that though they have to be transported on big rig trucks. Some one has to pay for the gas used to move a product from say California all the way out here to Arizona for example. The store owners have to find a way to cover the cost of that expense. The usual solution they come to is a rise in prices across the board on products they sell. These price changes are not a flat fixed increase across the board neither. They change on a near daily basis. Certain products from this state may rise in price more so than the products being imported from another state. Now common grocery stores are essential to everyday families. They rely on them for food and a small selection of miscellaneous goods like toilet paper. As the prices here at the storefront rise the pockets of families will...
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...in prices for the last decade. The current price of gas at my local Quik Trip is $3.63. This price has been as low as $2.99 and has been as high as $3.99 in the last four months alone. Many of my fellow G.O.P. brothers and sisters will have you to believe that President Obama is solely to blame for these price hikes. This is the furthest from the truth. There are many reasons that our prices at the pump are increasing, many of which the President has little power to change. As was previously stated, gas is a commodity. As such it is affected by market trends. Gas prices are also affected by external issues on which the President has little say. The first thing that you learn when you take an economics course is the theory of supply and demand. Think of a child’s seesaw. The recession depressed oil demand, which depressed gas prices. As the global recovery takes hold, more people are working and driving. This is being felt not only by American’s, but by the entire world. Until supplies catch up to the demand we will be looking at even higher prices at the pump. According to Benoit Faucon, “The bottom line for demand: Global consumption of oil and liquid fuels should increase by about 1.3 million barrels a day in the third quarter from the first quarter, according to the U.S. Energy Information Administration. But supply will fall by about 310,000 barrels a day in the third quarter from the first.” (Faucon par 14). Global politics play a part in the price we pay...
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...Paul Fuller Problem: Gas Prices Are to High One of the major issues in America is gas prices are to high. I lived in Jacksonville Florida where gas prices were almost four dollars a gallon. This can be a major problem for families on a budget who cant fill their tank to take their kids to school, buy food, or even make it to work. A lot of people wonder why gas is so high. Commodities traders cause high gas prices. They bid up the price of gas contracts on the commodities futures markets. These commodities exchanges allow investors to buy contracts of gasoline for future delivery at an agreed upon price. However, many traders have no intention of taking ownership of the gasoline. They plan to sell the contract for a profit, instead. The most immediate thing we can do is reducing our usage of gas, either through driving less or increasing fuel efficiency. Surprisingly, the best way to increase fuel efficiency is to keep tires inflated. Longer term, we can change our need for oil and gas by switching to alternative fuel vehicles, using public transit and moving closer to work to reduce commuting time. This will reduce the impact on each of us individually by reducing use. Could this reduction in itself reduce the high price of gas? It could, if it could reduce demand for oil enough to lower oil prices. It would have to happen on a sustained basis over a long period of time. That’s because gasoline accounts for only 20% of each barrel of oil. Oil companies would still...
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...Filling up at the gas station has been a much more pleasant experience for Americans since last fall. Regular gas is now less than $2 a gallon in many states, down from around $3.30 just a year ago. But how long will that last? It's just one of many questions stemming from the extraordinary drop in crude oil prices — a development that has boosted consumer confidence, hurt once-booming energy states and presented new opportunities — and challenges — for the U.S. and global economy. Q: Why did oil prices fall so much, so fast? A: A confluence of factors has contributed to the more than 50 percent slide in oil prices since September. The biggest is the steady rise in world petroleum supplies, mainly because of the shale-oil revolution in the U.S. Thanks to hydraulic fracturing, or fracking, and other drilling techniques, the U.S. has accounted for more than 80 percent of global crude production growth in the last five years. More recently, an increase in oil output in Iraq and Libya has further boosted capacity. At the same time, there are signs of softening demand. Economies in Europe and Japan have been stagnant, and the Chinese economy, the biggest driver of global oil demand, is slowing down. The strong dollar also has helped pushed down oil prices. Q: How long will it last? A: Low prices at the pump may be short-lived because the cost of crude is likely to start rebounding in the second half of this year. That's based on predictions of future supply and demand...
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