Quiz: What You Don't Know About Gas Prices
Photograph from WIN Initiative/Getty Images
You know that the price of fuel seems to skyrocket every year just in time for summer vacation season. But how much do you really know about the forces behind the price at the pump?
In the United States—the country that is the world's largest consumer of gasoline (petrol)—how much does demand for the motor fuel increase in summer?
- 4 percent
- 8 percent
- 16 percent
- 24 percent
Over the past decade, gasoline consumption averaged about 4 percent higher between Memorial Day and Labor Day in the United States than in the other months of the year, the U.S. Energy Information Administration's data show.
The global price of crude oil is the largest factor affecting the price motorists pay to fill up their tanks. Each one-dollar increase in the price per barrel adds how much to the price at the pump?
- 1 cent per gallon (0.3 cent per liter)
- 2.4 cents per gallon (0.6 cent per liter)
- 5.4 cents per gallon (1.4 cents per liter)
- 10 cents per gallon (2.6 cents per liter)
With 42 gallons (159 liters) of oil per barrel, a $1 price hike translates to 2.4 cents per gallon (0.6 cent per liter) by simple division. But the retail price depends also on refining and distribution costs, local taxes, and competition among service stations.
In what country did motorists pay the highest price for gasoline (petrol) in 2010?
- The United States
The sub-Saharan nation of Eritrea, with no domestic oil production, had the world's highest pump price at $9.63 per gallon ($2.54 per liter). Thanks to generous state subsidies, motorists in oil-rich Venezuela paid the low price of 8 cents per gallon (2 cents per liter).
In the 40 years before the historic oil price peak of 2008, what event caused the largest run-up in the global price of oil, on an inflation-adjusted basis?
- Arab oil embargo, 1973
- Iran-Iraq war, 1980
- Iraq invasion of Kuwait, 1990
- Hurricane Katrina, 2005
When adjusted in terms of 2008 dollars, the global oil price reached about $95 per barrel during the Iran-Iraq war of 1980, a level it never again surpassed until the run-up that peaked at $140 per barrel in July 2008.
True or false? The free market sets the price of oil.
OPEC, the Organization of Petroleum Exporting Countries, whose 12 member nations produce 40 percent of current world oil supply, can keep prices higher than a truly free market would dictate, by setting limits on how much member states produce.
In recent years, some OPEC member states have blamed rising oil prices on what factor beyond their control, other than the forces of supply and demand?
- The weakness of the U.S. dollar
- A global shortage of tankers
- An increase in oil spills
- Coordinated action by major oil companies
Because they have long priced their oil in dollars, the OPEC nations bring in less money per barrel when the value of a dollar is falling. This has led some members of the cartel to argue for a shift to valuing oil by the euro, or by a basket of global currencies.
Demand for motor fuel is projected to be stronger in the summer of 2011 than it was last year. What is expected to happen to refiners' margins?
- Margins are expected to stay the same. Demand has no impact on the spread between what refiners pay for crude oil and what they charge for gasoline.
- Expected to rise only slightly. The increased cost of crude will offset much of the sales gains.
- Expected to increase 50 percent due to worldwide strength in fuel consumption.
- Expected to fall despite increased fuel demand, because crude oil's price has risen so rapidly.
Global fuel demand is expected to be strong enough to lift refiners' wholesale gasoline margins to 53 cents per gallon in summer 2011, compared to 36 cents per gallon in 2010. For diesel, the wholesale margin is expected to rise to 60 cents per gallon from 40 cents per gallon.
Since 1970, there have been six economic recessions in the United States. How many of those have been associated with increasing oil prices?
The economic slowdowns that began in 1973, 1980, 1990, 2001, and 2008 all were preceded by sharply rising global oil prices. Only the 1981 downturn, considered by many the second half of a double-dip recession, occurred after a fall in prices from the previous year.
Which of these U.S. cities has had the lowest average pump price over the past five years?
- Los Angeles
- New York
The average retail gasoline price (all grades, all formulations) from 2006 to May 2011 in New York was $2.89 per gallon, surpassed by Miami at $2.95 per gallon, Chicago at $2.97 per gallon, and Los Angeles at $3.13 per gallon, according to U.S. Energy Information Administration data.
Why do cities seem to have higher gas (petrol) prices than suburbs or rural areas?
- City gas taxes
- The cost of transporting the fuel
- Less competitive pressure among service stations
- All of the above
Many factors lead to high pump prices in urban areas, including additional taxes in some areas, the higher cost of distribution and—in many cases—fewer service stations competing to offer lower prices.
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