Week 3, Personal Assignment, Current Econ Analysis

Question 1

Visit: CNN.com

Go to www.cnn.com and do a search using keywords: crude oil prices. Find an article which discusses recent changes in the price of crude oil. I want you to 1) in one full page, discuss the reasons stated in the article explaining why the price of crude oil has changed, and 2) use supply and demand graphs to illustrate what is being discussed in the article.

The article I selected is titled “Gas prices screech to a halt,” written by the CNN Wire Staff on September 23, 2012. But before I discuss the article, I want to provide some background information on crude oil, where it comes from, and how it’s priced, to put the discussion and article in context.

As of April 2012, crude oil prices made up 66% of the price of gasoline. The rest of what we pay at the pump depends on refinery and distribution costs, corporate profits and federal taxes. As I will show later, crude oil prices are affected by supply and demand. More demand, like the summer driving season, drives higher prices. Conversely, there is usually less demand in the winter. Oil prices are also affected by oil price futures, which are traded on the commodities exchange. These prices fluctuate daily, depending on what investors think the price of oil will be in the future. http://useconomy.about.com/od/supply/p/oil_gas_prices.htm

OPEC (Organization of Petroleum Exporting Countries) is an organization of 12 oil producing countries (Algeria, Ecuador, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, UAE and Venezuela) that produce 46% of the world’s oil. In 1960, OPEC countries formed an alliance to regulate the supply, and to some extent, the price of oil. OPEC’s goal is to keep the price of oil at around $70 per barrel. A higher price gives other countries the incentive to drill new fields which are too expensive to open when prices are low. The U.S. also stores 700 million barrels of oil in the Strategic Petroleum Reserves that can be used to...