Global Oil Prices and the Impact of China, Term Paper Example

The price of gas prices has lately come into the main topic in the United States. With gas prices fluctuating, Douglas McIntyre in 24/7 Wall St. scribes, “Gas Prices Above $3 in all 50 States”, written on February 17, 2014, it still is a relevant problem eight months later. The article details how some of the most populated areas in the United States have seen the price go up more than $3. More predictably in all 50 states the price of gas has risen over the $3 threshold. While McIntyre gives several reasons on why the price of oil has risen, it largely surrounded by the impact on the winter in which forces people to increase their heating oil, which has all around spiked the demand growth for upward gasoline prices throughout the year. (McIntyre 2) While this concise article sheds some light on the issue, it also provide the economic concerns in which much of demand far exceeded the supply. Based on this economic claim, this paper will look at the issue in combination with the economic concept of supply and demand.

Within McIntyre’s article he states that due to the extremely cold winter, it has seen the price of gas rise. During the winter in late 2013 and early 2014, the unprecedented winter, forced many home owners to use more heating oil or gas. This spike in demand for oil, also attributed to the higher gas prices. This also can be seen in reverse, when the winter is warmer the price of gas is lower, because the demand is lower. While in the summer when more people travel, and use more energy or gas, the price of gas increases because the demand for gas increases. On the supply side the demand impacts this as well, as more demand means shorter supply. As Investopedia illustrates, “The law of supply and demand defines the effect that the availability of a particular product and the desire (or demand) for that product has on price.” (Investopedia) The weather greatly impacts how the gas will be priced, and the fluctuations in demand will generally impact the supply of gas for consumers. For states that are highly populated they demand more oil, but the supply is limited forcing higher prices.  This is illustrated in the chart supplied by U.S Energy Information Admiration (2014) in which shows how the temperatures set record highs in prices, gas storage withdrawals, and demand.

McIntyre also iterated that the economic growth of China has also impacted the price of oil. “The People’s Republic is the largest importer of crude oil in the world.” (McIntyre 1) According to studies on China’s impact, the economic growth of the country adds a premium cost to oil, which will continue to increase over time. (Beirne, Beulen, Liu, and Mirzael 41) This is due impact to the sustainability of the country’s faster growth rate implies a greater demand for oil, in which limits the supply for oil worldwide. The growth of China’s urban population raises the demand for energy to supply their increasing transportation sector. This also is driven by the demand for new roads, and newer vehicles which increases the demand for petroleum. Since China is the larger importer, they must first supply their citizens in their country, and then import what is left to other countries. Even considering the weather impacts in the United States, the supply of crude oil from China would still be low based on their fast economic growth. The rapid economic industrialization and development has spiked the demand for energy throughout Asia, which has contributed to the higher prices of oil. Within the last two decades, India and China have accounted for over 70% of the increased demand in energy. (Mouawad, Werdigier) The stabilization of the gas prices in the recent years has given way to increased economic development and population growth in the United States as well, which has spike the demand for crude oil, and limited the supply.

In McIntyre’s last point he makes that OECD demand growth accounted for a large percentage of the demand. “Demand growth is expected to accelerate in 2014 in line with the broader economy.” (McIntrye 2) Before 2007, the demand for oil increased significantly at over 86 million barrels per day. When the world was hit with the economic slowdown it fell significantly to less than 1 million barrel per day, before finally rebounding recently. The growth has increased to when it was demanded at over 86 million barrels per day. The non-OECD countries such as the Middle East, Brazil, and China have increased their oil usage has driven the price of $100 for one barrel. (McIntyre 1) This has been driven by the world supply and world demand of oil, and the factors of spare oil production capacity, supply-demand trends, and oil inventories, among others. The supply for oil has sharply lagged behind the demand, along with political turmoil and fast economic growth, in some non-OECD countries have impacted the supply of cruel oil to the rest of the country.

In conclusion, McIntyre’s article provides a brief look at the factors in which impact the price of gas in the United States. The economic growth and development in non-OECD countries along with China have dramatically increase the demand for oil consumption, which has greatly impacted the supply for crude oil around the world. The increase of demand has increase the price, and usage of oil in these countries, which has had impacted on the price in the United States. Along with the weather, the supply of gas and oil for the states has greatly been exceeded by the demand to supply the U.S residents. The results of economic growth, economic development, and supply and demand trends has caused the price of gas to increase beyond the $3 threshold in the United States.

Works Cited

Beirne, John &Beulen, Christian & Liu, Guy & Mirzaei, Ali. “Global oil prices and the impact of China.” China Economic Review. Elsevier, vol. 27(C), pages 37-51.2013. Print.

“Cold weather led to record-high natural gas storage withdrawals.” U.S. Energy Information Administration. 17 January 2014. Web. 21 October 2014. http://www.eia.gov/todayinenergy/detail.cfm?id=14651

“Law Of Supply And Demand.” Investopedia. 2014. Web. 21 October 2014. http://www.investopedia.com/terms/l/law-of-supply-demand.asp

McIntyre, Douglas A. “Gasoline Prices Above $3 in All 50 States.” 24/7 Wall St. 17 Feb. 2014. Web. 21 October 2014. http://247wallst.com/energy-economy/2014/02/17/gasoline-prices-above-3-in-all-50-states/

Werdigier, J, Mouawad, J. “Warning on Impact of China and India Oil Demand.” NY Times. 7 November 2007. Web. 21 October 2014. http://www.nytimes.com/2007/11/07/business/07cnd-energy.html?_r=0

“What Drives Crude Oil Prices?” U.S. Energy Information Administration. 7 October 2014. Web. 21 October 2014. http://www.eia.gov/finance/markets/demand-oecd.cfm