Oil Price

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...