mines prices markets

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Like most of the things you buy, oil prices are affected by supply and demand. More demand, like the summer driving season, drives higher prices. There is usually less demand in the winter, since only the Northeast U.S. uses heating oil. However, oil prices are also affected by oil price futures, which are traded on the commodities exchange. These prices fluctuate daily, depending on what investors think the price of oil will be going forward.

OPEC is an organization of 12 oil-producing countries that produce 46% of the world's oil. In 1960, they formed an alliance to regulate the supply, and to some extent, the price of oil. These countries realized they had a non-renewable resource. If they competed with each other, the price of oil would be so low that they would run out sooner than if oil prices were higher.

OPEC's goal is to keep the price of oil at around $70 per barrel. A higher prices gives other countries the incentive to drill new fields which a

re too expensive to open when prices are low.

The U.S. stores 700 million barrels of oil in the Strategic Petroleum Reserves. This can be used to increase supply when necessary, such as after Hurricane Katrina. It is also used to ward off the possibility of political threats from oil-producing nations.

The U.S. also imports oil from non-OPEC member Mexico. This makes it less dependent on OPEC oil. NAFTA is a free trade agreement that keeps the price of oil from Mexico low, since it reduces trade tariffs.

The U.S. uses 20% of the world's oil. Two-thirds of this is for transportation. This is a result of the country's vast network of Federal highways leading to suburbs built in the 1950s. This decentralization was in response to the threat of nuclear attack, which was a great concern then. As a result, the country has not developed the infrastructure for a national mass transit system.

The European Union EU is the next biggest user, at 15% of the world's oil production. China only uses 10%, but its use has grown rapidly. (Source: BP Statistical Review of World Energy, CIA World Factbook)

Oil futures, or futures contracts, are agreements to buy or sell oil at a specific date in the future at a specific price. Traders in oil futures bid on the price of oil based on what they think oil will trade at. They look at projected supply and demand to determine the price. However, if traders think the price of oil will be high, they create a self-fulfilling prophecy by bidding up oil prices. This can create high oil prices even when there is plenty of supply on hand. Once this starts, other investors will bid on oil prices just like any other commodity, such as gold, creating an asset bubble.

Crude oil accounts for 55% of the price of gasoline, while distribution and taxes influence the remaining 45%. Usually, distribution and taxes are stable, so that the daily change in the price of gasoline accurately reflects oil price fluctuations. Occasionally, however, distribution lines are disrupted or are down for maintenance, which can increase the price of gasoline even when oil prices are down.