Reasons for an Oil Price Increase

A gasoline station.

Although the price of crude oil natural rises due to the non-renewability of oil as a resource, political instability often acts as an instigator for sharp increases in oil prices. The dependence on the relatively few oil-producing countries has motivated countries such as the United States to seek alternative energy sources.

History

Oil prices have steadily climbed since the 1940s, but the Yom Kippur Oil Embargo was the first major event to directly cause a drastic rise in oil prices--from $20 per barrel to around $40 in one year, according to WTRG Economics.

Significance

Oil prices effect not just the price of gasoline, but other sectors of the economy as well. In 1973, when the Yom Kippur embargo started, gasoline went from 38.5 cents to 55.1 cents in one month. This coincided with stock market losses of $97 billion, according to StateMaster Encyclopedia.

Types

Historical charts from WTRG Economics show that most of the reasons for sharp increases in oil prices are political. However, natural inflation and source reduction does contribute some rise to oil prices.

Considerations

Some people, such as New Jersey Congressman Jim Saxton, believe that the Arab oil organization, OPEC, sets oil prices artificially and uses oil as a political weapon due to the abundance of oil in the Middle East. However, the top four exporters of oil to the United States are not located in the Middle East, according EIA statistics.

Prevention/Solution

The constant rise of oil costs and occasional spikes in oil prices, coupled with decreasing world oil supplies, have led the United States to push alternative fuels like hydrogen, according to the EIA.

References

• History of Oil Prices
• 1973 Oil Crisis
• OPEC Strategy and Price Volatility

Resources

• U.S. Oil Exporters