Augustana Observer

Augustana Observer

Augustana Observer

Faculty: Low gas prices drop due to technology

Drivers across the U.S. will be able to watch the national average price of gas fall below $3 for the first time since February 2010, which Professor of Economics Christopher Marme said is due to technology advancements.
“The boom here has been driven by the development of technology that, at a high enough price, has made it possible for producers in U.S. to profitably employ this technology…the end result is much more non-OPEC oil on the market,” said Marme.
Up until recently, the Organization of Petroleum Exporting Countries (OPEC), primarily Saudi Arabia, flooded the oil market with cheap oil, and pushed other producers out of the market.
The result of more non-OPEC oil has plummeted stock prices.
Since July, crude oil has seen a 42 percent drop. Marme said prices may go back up again, but this may not be all that important to Americans in the future.
For nearly half a century, OPEC has dictated the climate of the oil market.
Comprised of the Islamic Republic of Iran, Iraq, Kuwait, Saudi Arabia and Venezuela, OPEC generates about 45 percent of the crude oil production in the world.
It is able to sell its oil at much lower prices than the U.S. because it can maintain much lower production costs.
“Longer term, say within a generation, I think it is highly likely that our dependence on oil (domestic or imported) will have moderated enough that, coupled with many alternative sources of oil, there will be little reason to expect prices to be, in real terms, significantly higher than they are now,” said Marme.
There are speculations that the nationwide averages will breach $2.50 by New Year’s.
Historically, prices decline between fall and winter. According to GasBuddy, the average price in Illinois and Iowa has sunk to $2.61 and $2.52, respectively.
Xiowen Zhang, associate professor of political science, agrees that the drop in prices is a result of technology.
Zhang, whose emphasis is international political economics, believes these technological advancements give the U.S. a slight edge on the competitor.
“Political leverage that the U.S. has over some of the major oil producers in OPEC may also be used to influence their supplies, if the U.S. deems the continuous decline of oil price harms its interest,” said Zhang.
However, for the immediate future, it seems as though prices will remain low across the country.
One of the cheapest states to get gas in lies right across the river. Iowa is experiencing prices that have been almost 20 cents lower than Illinois.
Senior Greg Larson, accounting and business management major and Investor’s Club president, explained that the flow of the Mississippi has nothing to with the difference in price.
“As of April of 2014, Iowa taxes plus federal gas taxes came to a total of 40.4 percent of the purchase price of gasoline,” said Larson. “Illinois, on the other hand, had total gas taxes of 57.5 percent, hence a 17.5 percent inherent difference.”
Marme said environmental factors are at play as well.
“The Iowa-Illinois price difference is mainly due to environmental standards in Iowa versus Illinois,” said Marme. “In more populous areas the gas used must to be cleaner (more expensive) to keep the level of air pollution at a tolerable level.”
Currently, the highest gas prices in the nation are in Hawaii at $3.78 per gallon and the lowest are in Missouri at $2.47 per gallon.

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Faculty: Low gas prices drop due to technology