Pumped at the pump

gas prices keep falling

Screen Shot 2015-01-21 at 9.57.24 AMGas prices have been falling since May of last year, but will soon hit a new milestone: experts predict that gasoline prices will be down to less than two dollars per gallon nationally.

In Central Florida, this is already the case: gasbuddy.com reports stations in Central Florida as low as $1.91 per gallon.

In Jefferson County, prices vary from $2.19 to $2.29 per gallon. Madison County prices range a little higher: from $2.24 to $2.34 per gallon. For Monticello residents, a short drive to Thomasville will yield similar results: prices there range from $1.99 to $2.19 per gallon. However, a drive to Valdosta will yield the best prices of all: $1.92 to $1.99 per gallon— below the national average of $2.08 on Thursday, Jan.15.

While Americans everywhere rejoice, speculators are concerned. The reason that gas prices are so low is linked to supply and demand. The Organization of the Petroleum Exporting Countries (OPEC) governs the production levels of crude oil by the countries that have crude oil as an abundant natural resource. (Crude oil is “refined” into gasoline, among other products).

Many believe that they are producing crude oil at such high levels to drive down the price and wipe smaller exporters off the map. Small exporters have similar operating costs as large exporters and once prices fall beyond a certain point, they begin losing money on the sale of each barrel and will quickly go out of business.

There is currently an oil surplus— that is to say, more is being produced than can even be used. This surplus means that oil is currently a little below $45 per barrel. Bank of America predicts that it will fall to $32 per barrel by the end of this quarter. A simple ratio indicates that, should this happen, gas prices could be as low as $1.48 per gallon ($2.08 / $45 = x / 32).

Screen Shot 2015-01-21 at 9.57.04 AMThis concerns speculators, who realize that crude oil is a limited resource. This raises concerns about “peak oil,” a theory set forth by M. King Hubbert, a geoscientist working for Shell gasoline, in 1956. The theory states that at some point the collective industrialized world will reach the most oil it can produce, and everything thereafter will be a decline in production until such time as there is no more crude oil to be extracted.

His theory did not (indeed, it could not) take into account the discovery of new sources of oil. He swore that peak oil would be reached in 1965 (it was not) and then swore again that it had been reached during the energy crisis of 1973 (it was not). Hubbert went to his grave with even more predictions: however, the theory has fallen out of fashion only to return to the American conscious when production is slow and gas prices increase.

U.S. oil production slumped in 2009 to below half of peak production in the early 1970’s (four million barrels per day compared to 10 million barrels per day, respectively). It is up to 9.5 million barrels per day now. However, this feverish production rate begs the question: can this rate be maintained?

Because if it cannot be, buyer beware: the American public will see another slump in production and more pain at the pump. But for now, production is high and prices are low.

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