Question: (A) Between 2001 and 2011, the real (2021 US $) price of a barrel of oil rose at a rate of about 13% per year

  1. (A) Between 2001 and 2011, the real (2021 US $) price of a barrel of oil rose at a rate of about 13% per year in real terms to around $128 per barrel in 2011, but the real price fell to $47 per barrel in 2016. It rebounded in 2018 and 2019, only to fall to $42 per barrel in 2020. Prices have recovered to $93 per barrel in August, 2022. If you predict that prices will rise over the next 10 years, at 1% per year in real terms, what will the price of oil be in August, 2032?

  1. The price of a barrel of oil in August, 2022 was $93 per barrel, and the price of a gallon of gasoline is $3.50 per gallon. What will be the price gasoline in August 2023 and 2024 if you assume that gasoline prices increase at the same 1% per year as the price of oil?

  1. Suppose that 2 years ago, SouthWestern Ohio gasoline distribution company bought a forward contract for delivery of gasoline from Exxon in 2023 for $3.50 per gallon and in 2024 for $3.55 per gallon, based on your oil price projection in (B), will these contracts save them money? Be sure to show how you arrived at your answer.

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