OPEC Threats will Drive Up Gas Prices

The Organization of the Petroleum Exporting Countries (OPEC) may decide to raise gas prices in the coming year due to a decrease in crude oil supply, says Dr. Peter Clark, associate professor of chemical engineering at The University of Alabama.

Clark predicts gasoline prices will remain at or above current levels throughout the winter and then increase in the summer driving season. The 2003 summer increase was driven by the crude oil shortage and low stocks of gasoline at a time of high demand.

“OPEC’s rationale is that the drop in the value of the dollar is lowering their revenue, so they need to increase the price of oil to make up the difference,” Clark said.

After this summer’s increase, November’s gas prices leveled off, but Clark said it is the member countries of OPEC that will continue to hurt the United States’ oil production. “We don’t have many other options, so we must pay the price if we want the gasoline products,” Clark said.

OPEC member countries consist of 11 oil-producing and exporting countries, from Africa, Asia, the Middle East and Latin America. They respond to market fundamentals and forecast developments by coordinating their petroleum policies. If demand grows, or some oil producers are producing less oil, OPEC can increase its oil production in order to prevent a sudden rise in prices. However, since the demand is low, they have the ability to alter gasoline prices to meet their profit goals.

In addition to OPEC, Alabama is considering a gas tax. “If implemented a gas tax has the potential to make the price of gasoline higher than it ever has been in Alabama,” Clark said.