2/07/2005

Gas Prices are Rising Again

Gas prices rose more than 7% in January, which typically is one of the slowest driving months of the year. Leading experts predict pump prices may surge past last year’s record highs when highway travel picks up late in the spring. One expert, Carl Larry and the article Gas could be costly for Summer Motorists; he suggests that gas prices will rise above last year’s peak due to rising demand for fuel and the higher price of crude oil. He states, “We’re starting to see the economy come back, so demand can only go higher from where it’s at.” It’s the simple rule of supply and demand. As demand goes up, and supply gets shorter, (which OPEC will cut supply if crude oil is less than $40 a barrel), and then price goes up. So as a consumer, what’s the secret to helping keep the gas price down?

7 comments:

June said...

The secret to keeping gas prices down is to use less of it according to the simple supply and demand logic used. If we could find other ways to do the short day-to-day travel, we would pay less at the pump when we need to take longer trips. The hard part is getting consumers to get around a different way in their daily lives.

BOB said...

Why does America let OPEC control the price of oil? The large demand for oil in the United States is making OPEC become greedy. If OPEC's supply only makes up a third of the world's oil, then America must cut the demand for it. The strongest nation in the world can definitely have an impact on the prices of oil. If America loosens its demand of OPEC oil, their prices will fall.

scott said...

The ordinary laws of supply and demand are definitely skewed when there is a price floor in place. Reducing our personal use of fuel will not drop the price of gasoline the way the oil cartel is currently working. The major factors in breaking the cartels and monopolies in the early 1900s in the US included unions, strikes, and government intervention. I don't know that I'm suggesting that those actions are currently necessary, but the individual consumer alone definitely has no power to control this market.

Dr. Tufte said...

Aargh! Economists hate this issue. Keston has blundered into a pet peeve and is going to get both barrels. Don't take it personally - I am doing this because it is an important issue for everyone in the class to get their mind around. There is a really gross collective irrationality in this country about gas prices - for example, bottled water is more expensive than gas, but no one complains about that.

Gas prices are not at or near record highs when measured in units that can be taken seriously (and I'll forgive students for saying this only because this is not a macro class).

Gas prices are only near record highs in terms of pieces of paper called dollars. This is a critical distinction because the price of just about everything is at record highs in terms of pieces of paper called dollars. In fact, my income is at a record high when measured that way, and your's probably is too. Why doesn't anyone crow about that?

The reason is that value is not measured well by pieces of paper called dollars because the value of dollars changes with inflation. So, you really want to measure the price of stuff in terms of other stuff that has real value - like say the amount of time you have to work to pay for something. Using that scale, just about everything is cheap.

In those terms, gas prices are higher than they have been in the very recent past, but quite low by historical standards. I have to work about 3 minutes (before taxes) to earn enough to buy a gallon of gas. In 1989 when I started out at the University of Alabama I had to work about 5 minutes to earn a gallon of gas, even though the dollar price of gas was much lower. That is a real gain for me.

Having said all this, there is a nice point in the cited article. Economists have been saying for about 2 years that part of the reason that gas prices are rising is that the global economy is doing so well. Typically this is ignored in the major media. But it is mentioned here, and it is a good thing: why should we be worried if gas prices are rising if it is because we are able to buy so much gas we can force the price up?

Another note is that there is a seasonal cycle with gas prices. We see articles like this in the media every year from February through April. The reason is that this is the time when refineries have to shut down and retool for summer blends from winter blends. This creates shortages that push up prices (and make for a good story). It happens every year, but they don't tell you that.

rico said...
This comment has been removed by a blog administrator.
rico said...

I have to work for about twenty minutes to pay for a gallon of gas. To fill my truck I have to work for seven hours before taxes! I guess my job just doesn't pay well, so in order for me to save money on gas I need to ride a bike or walk. That is how you keep gas prices down(for yourself)

Harry said...

I do not know what the secret is when cutting gas prices down. I wish that I did. The only thing that I can think of is using less of it. Then the supply for it will go down and the price should to. Because if people are not traveling as much then the sales will go down and so should the gas. This is a hard issue to figure out because in all actuality the people really do not have a lot of say.