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Volume 65 Number 4

Sinking gas prices send vibrations through America

by Robert Mack - 2015-02-19


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Shockwaves have been felt by the energy industry after months of plunging oil prices, but there are implications for Chadwick as well.

In July, oil cost $105 per barrel, and that has decreased to $45 today. Accounting for this are the fundamental economic laws of supply and demand.

“The demand side has accounted for, roughly speaking, 30% to 40% of the decrease. This is particularly coming from a few regions of the world,” Chadwick economic teacher Patrick Wallace said.

Those countries are known for importing and consuming massive amounts of oil.

“China’s growth is the slowest it has been in about 10 to 15 years,” Wallace said. As their economy stumbles, their usually high demand for oil decreases.

In addition, Europe has been seeing a general decrease in prices.

“When prices fall, it causes people to have an incentive not to spend because what you purchase today will be cheaper tomorrow,” Wallace said.

Hence, the demand for oil in Europe has also shrunk.The same is also true for Japan, India and Australia, among others.

On the supply side, the United States ranks just below Saudi Arabia in world oil production.

“We don’t technically need to import oil,” Wallace said.

Wallace said that as demand for oil has been decreasing in the United States due to increased energy efficiency, growth on the supply side has catalyzed.

“In the last 8 to 12 months, we’ve increased oil production by about 3.3m barrels per day. That’s the equivalent of another Kuwait being added into the world,” Wallace said.

Kuwait is one of the world’s largest producers of oil. While acknowledging the benefits for the highly diversified American economy as a whole, the energy industry has suffered as a result. Wallace expects oil prices not to stay low.

Sources of oil come largely from fracking and shell, both of which are expensive.

“It ranges in parts of the country from $35 to $70 a barrel to produce, and the current market price for oil is at $45 per barrel,” Wallace said. As a result, the companies are engendered and supply side might decrease.

But the demand side would have to contribute to the rising of oil prices as well.

Wallace pointed out that in past price drops, Saudi Arabia would have cut production, decreasing supply and raising prices for its oil.

“But today, if they cut that production and prices gradually go up, that market share will be filled by the U.S.,” Wallace said.

If the EU, Japan and others continue to take steps to increase economic growth, “that growth translates to additional demand for oil,” Wallace said. Hence, prices would increase.

But for now, according to Wallace, Chadwick families may feel the impact of a drop in oil prices.

“Due to the lower prices of oil and gas recently, I have a higher interest in driving to school because gas does not cost as much,” said sophomore Jeremy Cole, who commutes from Manhattan Beach.

Considering the strong U.S. dollar, “the opportunity to do travel, or going abroad, or shopping, those activities, should all be near hikes,” Wallace said. Those activities figure to be particularly inexpensive.

“If the Chadwick student is dependent on paying for their own gas, which is probably one of their only expenses, then for a student who is probably having additional savings in gas purchases, they might now be able to go buy a new pair of Uggs,” Wallace said.

“It makes it easier to get to places,” said Noelle Anaya, a Chadwick sophomore who lives in Cerritos.

“We couldn’t really take driving trips. We were supposed to go to San Francisco, but we couldn’t because the gas prices were too high,” Anaya said

Senior Elizabeth Haile, who drives herself to school, has experienced “no change recently” in options provided by the price drop.

Wallace acknowledged the increased responsibility that the situation might put on a Chadwick student.

“Any time you have income, you have two options,” he said. “One option is to spend it…it can also be spent on personal investment. Americans generally do not like to save.

“More or less we are a consumer nation, we are a debtor nation, individuals and the national whole.

“Our government and our people like to consume and like to run debts,” Wallace said.

“The most important thing is to be aware of your actions.”



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Article Keywords:

oil, chadwick, barrel, supply, demand, side, decrease, world, wallace, growth, production, price, increase, gas

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