Petroleum Exporting Countries and Oil Prices

Letter to the President

Dear Mr. President:

Thank you for placing your trust in me, by asking me to investigate whether or not it would be appropriate to blame the high price that Americans must pay for gasoline on the nations that belong to the OPEC Cartel. After my investigation, I have concluded that the OPEC Cartel has little to do with the skyrocketing oil prices. Your Excellency, the Organization of Petroleum Exporting Countries was formed in 1960. At the time of its inception, the organization had only five members.

This number has since grown to 12. With its headquarters in Vienna Australia, the principal objective of the organization is to coordinate and unify petroleum policies. The ever increasing oil prices have, however, put the organization on the spot as many people believe that it is not doing enough to contain oil prices. Worst still, the organization’s members have been widely criticized for extortion. Mr. President, after comprehensive research on these allegations, I found out the real factors affecting the global oil prices.

The main factor influencing the cost of gasoline is the price of crude oil. Crude oil is the raw material from which oil is made. Despite the increased demand for petroleum products, the rate of production of crude oil has remained relatively the same.

This, therefore, means that the OPEC countries often find keeping up with the international demand for oil almost impossible. When the demand for a product exceeds its supply, its price automatically moves upwards as market forces of demand and supply take control. It is possible to predict the high prices are here to stay considering the trend in the demand for petroleum products. All the OPEC countries are already working at full capacity with only Saudi Arabia in a position to supply additional crude oil. The extra production, if affected, will have a negligible effect on the already high prices.

The second cause of high petroleum prices is taxes. After importation, crude oil is subjected to federal, state, and local government taxes, which only help in raising the gas prices. Worst still, some states levy extra sales taxes on gasoline, making the commodity more expensive.

Refining cost is another burden that must be passed on to the consumers. Different regions require different gasoline formulations. This means that the imported crude oil must be subjected to numerous processes to ensure that it abides by the set standards. The refinery process requires the use of ingredients like ethanol, which increases the cost of the final product.

The principal objective of businesses is to make profits. As such, business managers and owners set profit margins after taking care of all expenses incurred. Despite the other factors like the cost of crude oil, government taxation, and refinery costs pushing up oil prices already, business owners still add their profits, which is a percentage of the purchase price. Other costs incurred in the marketing and distribution of the final products also find their way into the final pricing. As a result, the pump prices reflect the total costs, purchase of crude oil, refinery, marketing, distribution, taxes, and profits.

Your Excellency, It will be difficult to control the crude oil prices, but the government can still explore alternatives within its control to help alleviate the high oil prices. As such, I propose a significant reduction in the amount of taxes and levies on oil products. I also suggest the exploitation of alternative energy sources such as solar energy and nuclei power. This way, the country will not operate at the grace of greedy oil producers who will never cease increasing oil prices. The effects of the high oil prices are already weighing down the country’s economy. It is time to take drastic measures to safeguard the interest of the country and its citizens. Thank you.