Finding a Solution for Constantly Rising Oil Prices Thomas Johnstonbaugh COM/150 April 25, 2010 Although the price of oil has dropped over the past two years, global demand has significantly risen, and gasoline is still costing the public just fewer than three dollars per gallon. As of April 2, 2010, the average price for a barrel of oil in the United States is right around eighty-five dollars. This is causing a lot of people to drive less and trade in their gas hogs for smarter, more efficient vehicles. Alternative fuels and hybrids are becoming a dinner table conversation in a lot of households right now.
People who cannot afford to trade up to a new car, however, are left wondering when the gas price hike is going to end. The big question everyone wants to know is why people continue to pay so much at the pumps. This is a very valid question considering the following statistic. From the start of 1978 through December of 1998, the price of oil fluctuated only a few dollars. For the most part, prices stayed right around the fifteen dollars per barrel range and actually dropped to under ten dollars per barrel at the end of 1998.
Amazingly, in the twenty year period since then, the price of a barrel of oil rose almost one hundred and thirty dollars at the peak of the increase in July of 2008 (EIA, 2010). This brought on all forms of criticism from the American public and created debates about price gouging and corruption in the oil industry. The increase in the price of oil can be mainly attributed to the fact that the world’s demand for crude oil had become stagnant for many years. The United States was the main consumer that relied on oil.
This has been changing, however, over the last several years as rapidly developing countries such as China and India are beginning to rely heavily on oil as well. While production of oil was at a standstill, global demand for it was rising. This caused several shortages and, in turn, caused a major swing upward in the price for a barrel of oil. There are several other reasons for the price increase for consumers as well. Taxes on oil set by the government are a big factor in the prices we pay for gas at the pumps.
Since 1977, the federal and state tax amounts on gasoline have more than doubled the combined domestic profits of the major United States oil companies (Tax Foundation, 2010). This is staggering because many people are blaming the greedy oil companies for much of their frustration when they are filling their tanks. Another reason for the increase in price is the lack of strength of the US dollar. Oil is traded in US Dollars, and the weaker the dollar gets, the higher the price of oil gets for US consumers.
Electric-only powered vehicles were the big thing that was going to replace gasoline-powered vehicles several years ago. After being on the market, however, people realized that they were not able to go nearly as far as they were able to go on a tank of gas before having to recharge their battery. These were ideal for people that lived and worked near the city and did not have to drive far every day. Overall, however, this was seen as an inconvenience and as a result, did not catch on as some people had hoped.
This development, however, did pave the way for a new alternative that the public has grasped more than electric-only vehicles. All of these reasons have people looking for a better way to get around. The public has been barraged by ads recently for hybrid vehicles. Hybrids combine the use of gas with electricity to significantly increase the gas mileage of the vehicle. Almost every major automobile manufacturer has at least one hybrid vehicle on the market now. Hybrids can get up to around fifty-five miles per gallon depending on the make and model of the vehicle.
Compare this to gasoline powered vehicles that get an average of about thirty-five miles per gallon and that is a great difference. The question that remains is if they are as dependable and cost the same or less to maintain as gasoline powered vehicles. Hybrids’ battery packs can last anywhere in the neighborhood of 80,000-150,000 miles. These batteries can cost anywhere from three to five thousand dollars each. This is a very expensive repair; however, most manufacturers will guarantee their batteries up to 100,000 miles. There is an additional advantage to buying a hybrid vehicle as well.
A tax credit of up to thirty-five hundred dollars can be awarded to the next year’s income tax return for purchasing a new hybrid vehicle. This would cover the cost of a new battery pack, if one should ever be needed. However, in today’s economy, saving that money until a new battery pack is needed can be very difficult. Right now, hybrids are the most effective and available alternatives right now to gasoline-only powered vehicles. People that do not have the money right now to go out and purchase a new hybrid vehicle can look into the possibility of public transportation.
This alternative can only work effectively for people that mainly live in or right outside of a big city as busses do not have rural routes. Busses are an inconvenience for most people, however, and are not the most practical solution. Subways and trains can also be used by people not trying to drive their own vehicles on a daily basis; however, the same concept applies. Also, these alternatives also do not resolve the issue of trying to not depend on gasoline. There are alternative fuel sources that people are turning to in order to combat rising gasoline prices.
Labs all over the world are looking to find the best replacement for gasoline. This is a highly debated topic everywhere right now. The two alternatives that are growing with popularity right now are ethanol and CNG or compressed natural gas. Both of these fuels can be domestically produced, which is a plus; however, there are several downfalls to these alternatives as well. CNG is growing in popularity very quickly. Currently, there are over eight hundred CNG stations across the United States. Of these, however, only about half are able to be used by the public and there only a couple of CNG vehicle models available (CNG Now! 010). Ethanol has been considered as an alternative to gasoline; however, it has been found that it is actually more effective when combined with gasoline. This only equates to diluting gasoline costs by a little bit and does not effectively replace the dependency of gasoline. While these alternatives to gasoline are gaining popularity, seeing gasoline-powered vehicles replaced completely is still in the distant future. Most of the public are not in any type of position to upgrade their current gasoline burning vehicles.
While many people would save money in the long run by switching to a hybrid or alternative fuel vehicle, they do not have the funds sitting around to be able to do this. The recent recession has seen many people lose their jobs and adversely affecting their credit they would use to acquire these vehicles. The economy is going to have to improve greatly before we see more people demanding alternative fuel vehicles. Slowly but surely, we will see these vehicles starting to make their mark on the public. For right now, however, there are far too few of them out right now to see if they are suitable to replace gasoline-burning vehicles.
People with a lot of money to spend are going to be the ones that will first purchase these vehicles. The public will then either come along for the ride or back away depending on the results the first buyers receive from them. The majority of people will have to make many sacrifices in order to come up with the money to purchase these new vehicles until they become widespread and come down in cost. The overall agenda is to completely dissolve the current dependency on oil and gasoline. This will take time and many new ideas until one takes off enough to accomplish this.
With the combination of our recessing economy, job cutting and outsourcing, and rising oil prices, it is becoming increasingly difficult to own a vehicle and keep it filled with gas. Hopefully, the United States can rebound from the recent recession and become even stronger than it was before. In the meantime, however, people are still trying to figure out how to balance their own budgets and be able to make a car payment, insurance payment, and keep their vehicles on the road. The only real solution that is available for this problem right now is to drive as least as possible.
But the question remains: Will the new technologies and advances in the search for a replacement of oil inspire people to spend their money on them, or continue to throw their money away at the pumps? References China Daily. (2009). Why crude oil prices keep rising. Retrieved from http://chinadaily. yayuan. org/bizchina/2009-06/01/content_7958136. htm Cohen, A. (2008). What is driving the high oil prices?. The Heritage Foundation. Retrieved from http://www. heritage. org/Research/Reports/2008/06/What-Is-Driving-the-High-Oil-Prices “World Energy Outlook 2007: China and India Insights,” International Energy Agency, 2007, p. 48.