Have any of you been wondering why gas is so cheap these days? Some of you may think that it is an aberration or some of you may its back to the way it should be. Some of you may not even care as long as it stays this way. The simple answer is economics which would be supply and demand in the price of oil. As I write this, the price of oil is just below $36 a barrel as oppose to $120 a barrel back when gas was almost $4. This is also proof of how for example economic policy set in Beijing can affect you at the pump on Winchester here in Memphis. But more on that later. There are a couple of factors that have lead to cheaper gas prices. Let’s explore them a bit further.
1. America is #1
The first is that contrary to popular belief, the United States not only produces oil itself but due to its production doubling over the pass 6 or 7 years the U.S. is now the top oil producer in the world passing Saudi Arabia not too long ago. This is mostly due to more drilling offshore and the process of “fracking” that has allowed drillers reach oil once thought to be untouchable. Is this the president’s doing? Yes and no. He did not promote this agenda but he also did not stand in its way either. Sometimes inaction=action: More Supply
2. China may not be what we thought
Secondly, is China. See I told would make the connection between Beijing and Memphis. There is much economic uncertainty in China. There is reason to believe China may not be as strong economically as once thought due to sluggish manufacturing numbers which has given rise to its economic power over the past 20 years. Recently the Chinese yuan (Chinese currency) was devalued in an effort to “kick start” the economy moving again. China is the world’s largest importer of oil which means if they are not able to buy as much it leads to: More Supply
3. The Saudis are stubborn
Third, are our good friends in Organization of Petroleum Exporting Countries (OPEC). Most of them are middle eastern countries. The largest oil producer of those countries, Saudi Arabia, said that even with all of the supply out it the marketplace they will not slow production even with other countries like Venezuela and Nigeria( also OPEC countries)pleading with them to do so. Once again: More Supply
4. It’s not your grandfather’s Chevy
Lastly, vehicles are more gas efficient. The same Ford Explorer in 2000 is not the same one in 2016. Energy standards on vehicles have been raised due to the consumer reaction to gas prices 9 years ago. Now mpg’s still depend on the way you drive but if you drive more efficiently then you are getting more out of your tank which means less trips to the pump: More Supply
And one more thing.........
Whats the likelihood that gas prices will stay low for a while. My opinion is very likely. Iraq since the end of the war has been producing oil and a record pace. Iran has not stopped producing oil since being under harsh economic sanctions. Recently, those sanctions have been eased so that storage of oil will be flooding the market very soon which will lead to all together now: More Supply
WHAT’S THE BOTTOM LINE?
MORE OIL SUPPLY=CHEAPER GAS PRICES
Nothing is immune to supply/demand whether it be gas, food, or clothes. Keeping up with happens in the world market makes you a more informed consumer, allows you to spend wisely, and save more money. For business owners, this helps you to reduce cost which turns to higher profit margins and a leg up on competitors. This makes you what we like to call at OWLS, WealthWise. #AnOwlInYourCorner