Is the surge of price in oil/energy eating most of the household's income?

Is the surge of price in oil/energy eating most of the household's income?

Is now the time to rely on other sources of energy?

The Manila Times - Oil Price Hike

There are a couple of factors for gas prices to waver but it will always depend on the seasonal supply and demand. Diving into those factors, one of those is the recent and ongoing pandemic and other factors are based on global uncertainties.

Fixating our attention to the recent and ongoing pandemic. The COVID-19 in a way, had been a blessing and a condemnation to the public in disguise. With fuel energy/oil dropping to a price of zero dollars per barrel switching to a skyrocketed nerve price as the restriction of the COVID-19 in countries eases down. From having an excessive supply of oil, depleting the value of oil as a decrease in significant demand during the period of the coronavirus pandemic. To the choking value of oil to the public's wallets and the ever so increasing demand of oil usage as restrictions from the pandemic eases down.

In the year of 2020, the start of the unforeseeable economic uncertainties that the Covid-19 offered had affected the prices of the oil. In which a gallon of a basic gas was priced at $2.58 on the 6th of January 2020, declining the price to $1.77 at the month of April 2020. However in the same month of April, a crash on crude oil prices plummeted.

What is the impact on Gas prices when supply of Crude oil changes?

Crude oil is a raw material that is required to be extricated from the surface of the earth and goes through a refinery process to turn into gasoline and other petroleum products. As it is the principal ingredient to gasoline, any occurrence of price change or supply change will have an impact on the prices of gasoline. Furthermore, crude oil is a source of energy that the public requires to generate and produce electricity.

Other Factors affecting prices of gas

Decline in the OPEC output

The OPEC better known as the Organization of the Petroleum Exporting Countries, a brief summary of their responsibilities is that they correlate and merge the policies with regards to petroleum, ensuring unbiasedness is not performed and offering a firm price for petroleum producers. With a well organized, economic, constant supply of petroleum to nations utilizing petroleum. Prior to the increase in the prices of oil, the OPEC has an influence on the pricing of oils depending on when they have a limited supply of oil to trade.

The conflict between Russia and Ukraine

As Russia being the major country that exports crude oil, the reliance on Russia has been cut and banned to decrease the economy of Russia as a sort of solution to cut their resources to invade Ukraine. This as a result affected the global oil trade.

The Inflation Factor: How Rising Food and Energy Prices Impact the Economy

What happens to the economy in the light of this ongoing situation of the price increase to the oil/energy sector?

1. Consumption focus of households

With the spike in price to the oil/energy sector, this could affect the daily consumption of households, most of their income going to oil/energy; electricity, gas, and so forth which will result in tighter monetary conditions.

1. Agriculture - which in return affect food prices

Energy is used in the sector of agriculture. There are two methods required in the process in the agricultural sector that energy is essential for the course of action. In which it affects the food extraction, preparation and storage. When prices of oil/energy, cost would grow. With cost growing, prices of food increase. This at the same time causes inflation.

1. Oil/Energy trading companies

Not only does it affect households, with the increase in cost, this situation also affects companies that are in sectors that are interconnected with the consumption or traders of oil/energy. Sales volume will decrease which puts companies in a tight situation, inevitable events such as declaring bankruptcy could occur.

Possible but not probable solutions

The initiation of Oil Price Stabilization Fund

This policy’s objective is to stabilize the prices of domestic petroleum products. In the process of stabilizing the prices of petroleum, a fixed selling price of petroleum will be offered in negotiation with oil companies. Oil Price Stabilization Fund (OPSF) will be a fund to compensate for any price difference to the oil companies. It only triggers when the price of oil in the market is higher than the set domestic price of oil. This not only helps reduce the consuming citizens' worry in the fluctuation of the price of oil, it also helps the oil companies have a steady business.

Purchasing from Russia

As mentioned from the above Russia is the major exportation of oil, purchasing oil from Russia would definitely have a higher possibility of chances that oil prices can be traded at a lower price that would be deemed affordable.

Ripple Effect

However, with the initiation of Oil Price Stabilization Fund, countries especially with a budget deficit and an initiation to borrow money from a country with surplus funds would push countries with insufficient funds to the edge with debt obligations. Furthermore, even with the negotiations with the companies that trade oil/energy to capped prices at a fixed rate, compared to the real market price of the oil/energy. There will be an insignificant price gap that will pressure companies to withdraw from any type of trade negotiations with the country as they may be hitting sales volume targets but they are not receiving any profit margins. All in all funds will basically be extracted from taxes, which means taxes can increase if this was further implemented.

U.S. Embassy in Georgia

Moreover, with the situation going on in Russia invading Ukraine, economic sanction has been implemented with the support of over 30 countries. Such as limiting energy imports from Russia, intervening in any financial transactions and so on, just to diminish Russia’s economy in a way to decrease their economic power to fund any resource in helping invade Ukraine. If any support was given to Russia by purchasing any or negotiating any business with them, when that specific country plummets and in dire need of help, best believe that help may be hard for them to obtain. As supporting Russia, would mean supporting their decision in invading Ukraine.

Resolution

Diversification of energy

The diversification of energy is an agreeable solution that gives provision to a solution to curb the negative climate impact, in which the problem is visible with the consumption of oil.

1. Nuclear Energy

Nuclear energy, specifically, nuclear fission provides a zero-emission clean energy source. Through a process of producing energy that generates electricity that does not consist of any harmful byproducts that are released from fossil fuels.

Enel Green Power

1. Hydropower

Hydropower is a renewable energy that produces power with the presence of a blockage structure that alters the flow of the river. With the usage of hydropower, it indulges the cheapest source of energy, it is agile and responsive. Furthermore, hydropower has the ability to take advantage of rainwater. Adding on, fossil fuels are not in the process of hydropower, which helps the reduction of carbon dioxide which helps a positive climate impact.

1. Biogas

Biogas, renewable energy similar to the above example mentioned, in which is also an environmentally friendly process of generating power. The generation of power is produced from the usage of agriculture waste, plant material, sewage and so on. This also helps to take advantage of the visible waste.

Conclusion

Therefore, with the encouragement of using renewable energy, that has a potential provision of economic feasibility as companies who promote renewable energy will take this as an opportunity to invest in countries open to the idea of using renewable energy. Mentioning the above agreeable solution, the transitioning of generating power through the usage of renewable energy enables to promote positive climate impact that usage of oil is unable to provide. Furthermore, if possible but not probable solutions were to be pushed through and put into action, there will not be much economic feasibility.

Works Cited

Amadeo, Kimberly. “Crude Oil Price Prediction.” The Balance, 13 April 2022, https://www.thebalancemoney.com/oil-price-forecast-3306219. Accessed 27 October 2022.

Amadeo, Kimberly. “The Price of Gas: Why It Goes Up and Down.” The Balance, https://www.thebalancemoney.com/why-are-gas-prices-so-high-3305653. Accessed 27 October 2022.

Enel Green Power. “All the advantages of hydroelectric energy.” Enel Green Power, https://www.enelgreenpower.com/learning-hub/renewable-energies/hydroelectric-energy/advantages. Accessed 27 October 2022.

Enel Green Power. “All the advantages of hydroelectric energy.” Enel Green Power, https://www.enelgreenpower.com/learning-hub/renewable-energies/hydroelectric-energy/advantages. Accessed 27 October 2022.

Kearney, Laila. “U.S. oil prices have fallen below $0 a barrel. What does this mean?” The World Economic Forum, 21 April 2020, https://www.weforum.org/agenda/2020/04/oil-barrel-prices-economic-supply-demand-coronavirus-covid19-united-states/. Accessed 26 October 2022.

Margolin, Sam. “These charts show Russia's invasion of Ukraine has changed global oil.” CNBC, 31 May 2022, https://www.cnbc.com/2022/05/31/these-charts-show-russias-invasion-of-ukraine-has-changed-global-oil.html. Accessed 27 October 2022.

Mendoza, Maria Nimfa. “Lessons Learned: Fossil Fuel Subsidies and Energy Sector Reform in the Philippines.” Reforms in the Energy Sector in the Philippines, 2014, https://www.jstor.org/stable/resrep14793.6. Accessed 1 March 2014.

Organization of the Petroleum Exporting Countries. “Brief History.” OPEC.org, https://www.opec.org/opec_web/en/about_us/24.htm. Accessed 27 October 2022.

U.S. Embassy in Georgia. “International sanctions are working: Russia feels economic pressure.” U.S. Embassy in Georgia, 16 August 2022, https://ge.usembassy.gov/international-sanctions-are-working-russia-feels-economic-pressure/. Accessed 27 October 2022.

U.S. Energy Information Administration. “Nuclear explained - U.S. Energy Information Administration.” EIA, 7 July 2022, https://www.eia.gov/energyexplained/nuclear/. Accessed 27 October 2022.