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Assessing the Impact of Lower gas prices in Alterative Fuel Vehicles and the Consumption of Alternative Fuels

 

            Throughout the last fifty years of oil and gasoline consumption throughout .
             westernized nations including the United States, the elasticity of demand for .
             these fuels has been more dictated by the pricing decisions of OPEC over pure .
             market forces. With the turbulent pricing of gasoline on a global basis throughout .
             the 21rst century, the traditional interrelationships between demand and pricing .
             have become completely disengaged from each other. There is in fact no clear .
             definition of elasticity of demand for fuels, as the effects of oil futures trading, .
             OPEC pricing models and decisions, the inclusionary versus exclusionary .
             strategies of OPEC with regard to their lesser capitalized members, and the .
             continuing political turmoil of the Middle East only serve to exacerbate the .
             problem. .
             The response to this high level of uncertainty as at the one end of the spectrum .
             to create highly intricate forecasting and prediction models including the .
             Generalized Autoregressive Conditional Heteroskedascity (GARCH) Model .
             (Zhang, Lohr, Escalante, Wetzstein, 2008) which seeks to normalize and lessen .
             the shock on economic systems based on wide pricing fluctuations in the cost of .
             petroleum-based fuels. The magnitude of the pricing swings of fuel is a .
             contributing factor to the recession which occurred in 2001 and is also a major .
             factor in the uncertainty over the global economic condition in 2008 and 2009. .
             Devising models to explain the wide variation in fuel prices still does not alleviate .
             the high dependency the U.S. has on petroleum-based fuels, which account for .
             approximately 70% of the U.S. petroleum demand (Zhang, Lohr, Escalante, .
             Wetzstein, 2008).
             From a strategic standpoint, oil producers no longer have as much bargaining .
             power, even if they are OPEC, when their commodity begins to have in essence .
             its own behavior on pricing and demand curves. The price of petroleum and its .
             variant products has become less of a controllable aspect of the OPEC business .


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