Why Are Gas Prices So High… So Suddenly?
Despite the general increase in U.S. gasoline prices over recent decades, the past few years/months have seen an even higher rate of increase in prices. Why has that happened?
In the broader scope, we could blame a significant reduction in domestic drilling, pumping, and refining of oil. While that might be an adequate initial answer to the question, it certainly does not explain the price changes we have seen in the past year or two. So, what has driven the RECENT price increase?
Since we naturally take a Free Enterprise view of things here in the U.S., let’s start with a basic principle… supply and demand leads to market price:
- SUPPLY
- It’s fixed… even if there’s enough for MANY, MANY YEARS at our current rate of use, there is a finite amount of oil (as we know it) available on our dear Earth. Unless we figure out some way to create oil (economically) (not beyond the scope of my imagination), we have only so much to work with. GIVEN: supply, while arguably plentiful, is limited.
- But, the fact that supply is fixed isn’t enough isn’t enough in this case. Oil has to be made available… and we know most of the world’s oil supply is controlled by OPEC… a relative monopoly… and supply has only increased slightly recently:
- DEMAND
- While it’s been increasing somewhat over the years, it hasn’t risen dramatically recently:
- The U.S. is not responsible for the recent sudden increase nor are most other nations. Even while rates of demand have increased in mostly Asian countries, overall demand is up less than 10%. That doesn’t explain the HUGE increase in price.
- PRICES
- Here is the trend in gasoline prices in the U.S.A…. a big change:
Somehow, this doesn’t add up. Supply has increased slightly (7.37% since 2003) and demand has increased slightly (8.79% since 2003)… relatively the same rate (+1.42%)… and price has ALMOST DOUBLED (177% since 2003)!
What’s wrong with this picture?
Either supply and demand have teetered on a very sensitive precipice… which is a possibility… and the supply/demand equation has tilted in a direction that dictated abnormally higher prices (meaning the volatility is MUCH higher than it has been in the past, where larger diversions between supply and demand have resulted in only minor changes in price)…
…OR SOMETHING ELSE IS AFFECTING THE EQUATION.
More to come…
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