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Date Submitted: 11/03/2012 06:35 PM
ECON 411 Monetary and Financial Theory
Name: Mengxi Li
Professor: Miles Kimball
Date: Mar 20 2012
Oil Prices Won’t Keep Going Up Despite a Recent Soar
U.S. gasoline prices jumped 6% in February, thus some analysts and experts predict that
gasoline prices in the U.S. will achieve 5 dollar per Gallon in 2020 and that high oil prices will
hinder the U.S. economy recovery. However, so far, there are few signs showing that oil prices
will grow continuously, and the economy is still on its path of recovery in spite of the rapid
increasing oil prices.
Gasoline and other fuel product prices are mainly affected by several factors, the most
weighted of which is price of crude oil, the major component of fuel products, and the crude oil
price is decided by its supply and demand. Recently, “critical refining operations in the northeast
are shutting down” make a negative forecast of the U.S. economy recovery among some
economists and Wall Street commodities analysts. “There’s now going to be a question if we can
get enough gasoline into the East Coast for summer”, said David Greely, and energy analyst at
Goldman Sachs Group Inc. The global head of commodities research at Citigroup Inc. even
forecast that prices could head to record level, potentially as high as $5 a gallon in coming
months. The reason they hold their believes is that at the beginning of 2010, the East Coast had
12 refineries but since then, four have closed for good or have been idled because they are under
financial pressure. In his article Gasoline Prices Jump 6%, Poised to Keep Rising in the Wall
Street Journal, Jerry. A. Dicolo presents two main sources of their financial pressure.
The first is that “they have limited access to cheaper, high-grade crude oil produced in the
middle of the U.S. because there are not enough pipelines, which is forcing them to pay more for
oil from elsewhere, most of it from overseas, and many of their facilities aren’t set up to process
lower-grade...