1. Is $1 per gallon gas likely? Why or why not? What are your thoughts?
There are certain factors lowering gasoline prices in the US. The main reason for gasoline prices decline is a global oil glut happening due to the recent start of oil export from US, stable oil production in Saudi Arabia despite declining prices and cancellation of Iran oil export embargo. All this consequently led to drop of oil prices globally.
But nevertheless the $1 per gallon of gasoline seems unlikely now, because the other factors influencing its price like the cost of gasoline production and transportation are not going to become lower. Moreover, experts are expecting traditional rise of gasoline prices as producers transit to summer grade gasoline and refiners conduct their routine maintenance, which will shorten supply.
At the same time, much depends on the local taxation policy in different states. The national average tax is 50 cents per gallon of gasoline. But, let’s say, in Texas tax rate is lower – only 38.4 cents per gallon. In such cases as Texas with lowest taxes or Missouri with the lowest gasoline price at the moment ($1.68 per gallon) gas prices drop to a level of $1.25-1.3 is absolutely possible.
2. List 3 Supply determinants.
3. List 3 Demand determinants.
Country global consumption rate (both individuals and enterprises), gasoline prices, weather.
4. What is an oil glut?
Oil glut is a situation of oil overproduction, which leads to high level of oil inventory and consequent excess of demand over supply and decline of prices on oil and products made of it (like gasoline).
5. Why will the addition of Iran's oil coming to market compound the oil glut?
Iran’s oil coming to market will compound the oil glut, because it will boost the level of oil supply. Massive oil supply is the only way of earning money on oil for Iran in present situation.
6. How does oil as an input affect C + I + G = Y?
Oil as an input is closely connected with C component of the formula, the consumption level. The majority of goods and services have logistics (transportation) component in their prices. And in most cases transportation costs heavily depend on gasoline and oil prices.
