Why is gas so cheap? Causes and Consequences
Adam Groff explains that, “due to its abundance of oil and natural gas, Canada has quickly become a world leader in energy resources”. Changes in gas prices are something that all Canadians should take seriously because of the importance of gas within the Canadian economy. It is essential that Canadians understand what makes gas cheap or expensive, and how these factors apply to their country’s current natural gas price situation. One factor that determines the price of gasoline and can show why gas is presently so cheap in Canada is the change in the price of crude oil.
The price of crude oil has an inverse relationship with its supply and is also determined with demand. The supply of crude oil can determine whether the crude oil price increases or decreases. The U.S. Energy Information Administration mentions that, “Oil prices often increase in response to disruptions in the international and domestic supply of crude oil”. A smaller supply of oil means that the price of the oil will end up increasing. If there are no disruptions in the supply of oil, the supply of oil increases and the price of oil ends up decreasing. Crude oil prices can also be found by using demand. As demand for the oil increases, prices increase as well because of economic growth. As demand decreases, the crude oil prices will decrease because of the lower levels of economic growth. The fluctuating price of crude oil is one of the main reasons of price changes in gasoline.
The different prices of crude oil have a demand effect on gasoline. By looking at the price of oil, Canadians can get a good sense of how good or bad the economy actually is. According to Dan McTeague, an analyst for Gasbuddy, ”When the price of oil falls, the value of the Canadian dollar tends to fall along with it, since our economy is so closely linked to the oil industry”. This being said, the price of oil and the value of the Canadian dollar have a direct...