1. Date: January 23 rd Thursday State Standard: 12.2.2. Objective: SWBAT learn about how gas prices are affected by supply and demand. Do Now: Do Now: What do you think the regular price of gas is today? What do you think the regular price of gas is today? What is the highest gas price you have seen? What is the highest gas price you have seen? What is the lowest gas price you have seen? What is the lowest gas price you have seen?

2. Black Gold © nperskine 2012

3. Oil background Crude oil is an input into making gasoline Crude oil is an input into making gasoline 1 barrel of oil= 42 gallons of gas 1 barrel of oil= 42 gallons of gas Barrels are bought and sold as commodities on the NY Mercantile Exchange (NYMEX) Barrels are bought and sold as commodities on the NY Mercantile Exchange (NYMEX) © nperskine 2012

4. The late 2012 price per barrel of oil was $90 barrel. The late 2012 price per barrel of oil was $90 barrel. The prices nearly reached $150 barrel in summer 2008. The prices nearly reached $150 barrel in summer 2008. $4, 1859= $1,200 barrel in today’s prices $4, 1859= $1,200 barrel in today’s prices $10 gallon 1896 (w/ inflation) $10 gallon 1896 (w/ inflation) © nperskine 2012

5. According to recent studies, big American Oil Companies like Exxon and Chevron are not the main culprit for rising gas prices. According to recent studies, big American Oil Companies like Exxon and Chevron are not the main culprit for rising gas prices. State-owned oil has more market share of oil. State-owned oil has more market share of oil. i.e. Saudi Arabia, Iran, Venezuela, etc.i.e. Saudi Arabia, Iran, Venezuela, etc. 2011: About 1/3 of our 2011: About 1/3 of our total oil imports come from Canada (23%) and Mexico (10%). -Both of our neighbors export more to the U.S. than Saudi Arabia (9.8%) © nperskine 2012

6. OPEC Organization of Petroleum Exporting Countries (cartel) Organization of Petroleum Exporting Countries (cartel) Saudi Arabia, Venezuela, Iran, Iraq, Nigeria, Indonesia, etc.Saudi Arabia, Venezuela, Iran, Iraq, Nigeria, Indonesia, etc. Goal is to limit production of oil as a cartel, in order to increase prices Goal is to limit production of oil as a cartel, in order to increase prices Self-interest interferes with this ideaSelf-interest interferes with this idea About 1/3 of America’s oil is from OPEC nations About 1/3 of America’s oil is from OPEC nations © nperskine 2012

7. Are we really running out of oil? Past predictions of depletion: In 1914, gov’t predicted oil would last for 10 more years In 1914, gov’t predicted oil would last for 10 more years In 1939, gov’t predicted oil would last for 13 more years In 1939, gov’t predicted oil would last for 13 more years In 1951, they predicted oil would last for 15 more years In 1951, they predicted oil would last for 15 more years What does this mean? What does this mean? Global supplies of oil are actually increasing, NOT decreasing.Global supplies of oil are actually increasing, NOT decreasing. This is because more profits leads to more exploration and better technology to extract oil.This is because more profits leads to more exploration and better technology to extract oil. © nperskine 2012

8. What is this map of the Gulf Coast portraying? © nperskine 2012

9. Reasons for High Gas Prices Weather Weather Ex: Hurricane Katrina Political turmoil Political turmoil Ex: Nigerian conflict Rising demand Rising demand Increasing middle class in China and India (+ subsidized gas).Increasing middle class in China and India (+ subsidized gas). © nperskine 2012

10. Reasons for High Prices cont’d Countries such as OPEC cutting production quantities (i.e. 1973 oil embargo) and oil exports Countries such as OPEC cutting production quantities (i.e. 1973 oil embargo) and oil exports Speculation: group of investors who artificially increase the prices of the barrel of oil. Speculation: group of investors who artificially increase the prices of the barrel of oil. Huge demand= higher price of oil= higher price of gasHuge demand= higher price of oil= higher price of gas © nperskine 2012

11. Political Effects on Oil Prices 2006- Congressional elections led to gasoline decrease of 20% 2006- Congressional elections led to gasoline decrease of 20% Prices almost always fall starting on Labor Day, and ending in November. They begin to steadily rise as early as March. Prices almost always fall starting on Labor Day, and ending in November. They begin to steadily rise as early as March. © nperskine 2012

12. What are the True Costs of Gasoline? For the most part, when the price of oil increases, the price of gas also increases. For the most part, when the price of oil increases, the price of gas also increases. © nperskine 2012

13. The red line represents the real gas prices (adjusted for inflation), while the black line represents the nominal price (the current price at the time). What three years have the highest averages? Around which year saw the lowest average? The red line represents the real gas prices (adjusted for inflation), while the black line represents the nominal price (the current price at the time). What three years have the highest averages? Around which year saw the lowest average? © nperskine 2012

14. Who typically has the Highest Gas Prices? CA, NY, AK, and HI usually have highest U.S. prices. CA, NY, AK, and HI usually have highest U.S. prices. Lowest are in MO Lowest are in MO France- $8 gallon France- $8 gallon Germany, Italy, UK- $9 gallon Germany, Italy, UK- $9 gallon Norway, Netherlands- $10 gallon Norway, Netherlands- $10 gallon Turkey- $11 gallon Turkey- $11 gallon Why is gas so expensive in Europe compared to the United States? Why is gas so expensive in Europe compared to the United States? © nperskine 2012

15. What countries supply us with oil? © nperskine 2012