How much does consumer sentiment /fear affect the wholesale import price of oil (OPEC)?
America imports most of its oil. And those who sell have incentive to charge nearly the same price per barrel. Many factors affect the oil price: supply(which is regulated by OPEC), demand, refinery cost, etc.
How much would a change in American sentiment change the market price of oil?
i.e: recently Americans have gone from being angry at rising costs to feelings of fear and feelings that they are no longer in control. If the government did something to make them feel like they were more in control of their future energy needs, and maybe got them a little angry at the prices, instead of being afraid, how much and how quickly would this affect the oil price? What is the lowest it reasonably could go? What production costs are unaffected by sentiment and how much do they contribute to the cost of producing a barrel of oil?
& lastly, in addition: would a gasoline tax change consumer sentiment from fear to anger and/or confidence? Would this lower the pre-tax price? By how much?
Was part of the recent rise in market price due to consumer sentiment?
Americans have demonstrated in the past that their demand for oil is very inelastic, although recent high gasoline prices have caused some slowdown in the enthusiam for driving very large vehicles, and we are starting to see more hybrids on the road.
I say this because Americans’ appetites for consumption seem to outweigh their outrage at oil prices when it comes to deciding what type of vehicle to drive and whether or not to use public transportation. So I’d say that being more or less angry or afraid about oil prices doesn’t change much.
Plus, the US is only one of many nations using oil. China’s demand is growing rapidly, for example. So US consumption patterns are only one piece of the puzzle.
The conclusion is that US consumer sentiment doesn’t have much impact on oil prices, unless it were to take the form of a significant shift to using more fuel-efficient vehicles. I suppose that if all the people who drive big trucks and are angry about gas prices would run out and by a Prius, that would cause a downward blip in oil prices. But do you see that happening? I don’t.
With respect to a gasoline tax, think in terms of supply and demand. A gas tax has the effect of moving the supply curve up by precisely the amount of the tax increase. However, note that the change in equilibrium price may not be equal to the entire tax increase. It depends on the elasticity of supply and demand (the slopes of the supply and demand curves.) So yes, the pre-tax price could be lower than the post-tax price. But if demand is very inelastic (draw a near-vertical demand curve), then the tax increase goes almost entirely to the consumer.
December 30th, 2009 at 1:09 am
Americans have demonstrated in the past that their demand for oil is very inelastic, although recent high gasoline prices have caused some slowdown in the enthusiam for driving very large vehicles, and we are starting to see more hybrids on the road.
I say this because Americans’ appetites for consumption seem to outweigh their outrage at oil prices when it comes to deciding what type of vehicle to drive and whether or not to use public transportation. So I’d say that being more or less angry or afraid about oil prices doesn’t change much.
Plus, the US is only one of many nations using oil. China’s demand is growing rapidly, for example. So US consumption patterns are only one piece of the puzzle.
The conclusion is that US consumer sentiment doesn’t have much impact on oil prices, unless it were to take the form of a significant shift to using more fuel-efficient vehicles. I suppose that if all the people who drive big trucks and are angry about gas prices would run out and by a Prius, that would cause a downward blip in oil prices. But do you see that happening? I don’t.
With respect to a gasoline tax, think in terms of supply and demand. A gas tax has the effect of moving the supply curve up by precisely the amount of the tax increase. However, note that the change in equilibrium price may not be equal to the entire tax increase. It depends on the elasticity of supply and demand (the slopes of the supply and demand curves.) So yes, the pre-tax price could be lower than the post-tax price. But if demand is very inelastic (draw a near-vertical demand curve), then the tax increase goes almost entirely to the consumer.
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December 30th, 2009 at 1:17 am
time i guess it the best answer. Americans’ demand is very inelastic (but not perfect). we fear the cost of oil rising, but we will still demand it because that is the way we use to travel. the only real thing the gov’t should do is make sure that car efficiency standards are rising (but not FORCE companies to make it efficient).
No matter how angry/afraid we are with gas prices, it will not change overnight.
however notice i did say at the beginning that it is not perfectly inelastic. that is because over a long period of time oil is elastic. right now i am 19, and right now i drive to and from school. however maybe when i am 25 my car will break down (i drive an old car), and i will then buy a new car, because of increasing gas prices i am going to find a car with better efficiency, so i drive the same amount of miles for a little less gas. and more years from now i do the same thing, over and over and over again. well over a long period of time, because of the increase of prices will make people want to take public transit or buy better efficency cars, thus demand is less for oil, but it is going to take a long time demand to go down.
there is no way to really speed up this process
gas tax would not speed up this process or anything, but it will just make americans mad at the Government too on top of being made at OPEC and Refineries
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