Low gas prices saving Middle Tennessee residents significant money at pump
Lacey Klotz |
If you own a motorized vehicle, you have probably noticed the recent decline in gas prices over the past year.
Residents of Middle Tennessee are paying prices as low as $1.31 when as recently as 2008 gas prices were as high as $3.90 per gallon of gas.
According to a recent article in the New York Times, the price of a barrel of oil has fallen more than 70 percent since June 2014 and is the lowest they have been since 2004.
So two questions remain – why are prices so low and will they continue to stay low?
“There are four big factors at play: supply, demand, government policy and nature,” said Andy Borchers, professor of management and academic chair of the Department of Management, Entrepreneurship and Marketing in Lipscomb’s College of Business. “When oil was very expensive, a lot of people had incentive to go and find more – and they did. They found it in places like North Dakota, and ultimately the U.S. has become a much bigger oil producer than we were five or six years ago. Ultimately, however, there is only so much oil in the ground.”
Borchers explained that because there are worldwide demands for commodities like oil, a big contributor to the low prices of oil is that China’s economy has not grown as rapidly as anticipated.
“Prices and expectations go hand in hand,” said Borchers. “Although China’s economy is still growing, it is growing at a slower rate than anticipated. Because of this, they are demanding fewer commodities, and therefore commodity prices have dropped.”
Government policy is another contributing factor to the lowered prices. In recent years, the U.S. government, has been pushing the automotive industry for more fuel-efficient vehicles.
“We have seen tremendous shifts to improve fuel economy, in all vehicles,” Borchers continued. “This has contributed to lowering gas prices because it is a reduction in demand. Customer demand for pickups and, now, sport utility vehicles has increased, but even these vehicles are much more efficient then they were. Low gas prices have led fewer people to purchase smaller, more fuel-efficient cars. All electric vehicles like the Leaf are selling at a very slow rate.”
Other negative ramifications of low oil prices include global warming, and because of this, Borchers said there will not be an incentive to move towards lower polluting solutions such as solar power or electric cars.
However, aside from the positive savings Americans are experiencing at the pump, there are also positive aspects for large companies that have to buy fuel to run their operations.
“Profits have been soaring for airlines because the aviation fuel has dropped significantly,” Borchers said. “Oil is also a key ingredient in making things like plastic, so that lowers the cost of other products that use plastics.”
Although there is no telling when oil prices will be on the rise, Borchers says it is likely that they could remain low for the next year or so.
“The best predictions for the near term which is about a year, year and a half, are probably pretty flat,” said Borchers. “However, could there be a geopolitical event? Could there be a war in the Middle East? Could something happen that could shock the market? Absolutely. All of these things could affect current oil prices.”