If you are anything like me, you are probably appreciating the current low gas prices. It feels good to pull up to the pump at Costco and see that gas prices for 87 octane is only $2.16/gallon! Especially when you drive a gas guzzler that drinks 26 gallons of fuel at each fill up.
Low gas prices are derived mostly from low oil prices. It is said that crude oil makes up about 65-70 percent of the cost for gasoline. Interestingly enough, crude oil is nothing more than a commodity that fluctuates in price based on traders bidding on futures contracts. The majority of these traders are representatives from businesses that need the oil. They bid on the oil and actually have it delivered. It is purchased now at a fixed price for a future date. Others are just commodities traders trying to make a buck on the spread. So depending on what these traders believe the oil is worth in the future, crude prices could go up or down.
I definitely enjoy the low gas prices at the pump, but are there adverse consequences to these low oil prices? Can oil drillers survive? Will OPEC have to limit oil production to keep the price per barrel from falling to low?