9/13/2005

Will gas prices ever go down?

With gas prices so high most of us have asked the question, "when will gas prices go down?" I am afraid to say that the answer may be not for a very long time. John W. Schoen of MSNBC, seems to think that we are in for a long and bumpy ride. His response to a question that many of us have, http://www.msnbc.msn.com/id/3403854/, states that instead of wondering when gas prices are going to go down, that we change our driving ways or suck it up and expect these prices. I hate paying 3 dollars a gallon for gas, as does everyone, but, with the recent natural disaster and demand for gasoline so high, we should expect these prices. Even with the demand falling as we head into winter there is still not enough oil to cause prices to drop. As long as the demand exceeds the available supply the prices will stay high.

14 comments:

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Bree said...

A recent article in The Wall Street Journal talks about a possible increase in tax on gasoline. This means not only aren't gas prices going to go down but there may be an increase due to paying a higher tax. They feel this will make people find other alternatives: the bus, the more fuel-efficient car, etc. In theory, this will boost conservation and diminish the county's oil thirst. Mr. Feldstein, a harvard economist, says "The real purpose is to make the U.S. economy less dependent on energy....." (Found in The Wallstreet Journal). Also politicians feel this may be a strategy to raise the money to pay for the disaster in the U.S. Gulf, where oil refining is concentrated. Think this will help ease our pain and anxiety of the gas price surge? I don't think so...

Bree said...
This comment has been removed by a blog administrator.
emily said...

Have gas prices ever gone down and stayed at that price? Not to my knowlege. They have always gone up. Sometimes they will go down for a while, but then the next thing you know they are right back up there again. I think that what you said is right about the demand for gas. As long as there is a demand the price will be high, and I think that there will always be a demand for it. Sometimes the price of gas does not stop people. They don't care what the price is, they are still going to be going. I heard the other day that gas prices will be up to $3 permanatly by Christmas.

Ryan said...

The components of the retail price of gasoline
2003->2004
Gasoline price
Price of gasoline (per gal) $1.56 -> $1.85
Distribution, marketing 13%->14%

Refining costs and profits 13% -> 15%

Federal, State, and local taxes 31%->27%

Crude oil 43%->44%

It seems ratio has not been changed except Tax. (Tax ratio went lower.)
This data objectively shows us the reason of higher price is because of Crude oil since crude oil price has the biggest portion of gasoline price.

Logan said...

I don't think that the possibility of finding a solution to the problem is null and void. So much happens behind the scenes that you and I are unaware of. Is demand for gasoline and crude oil drastically different than it was five years ago? NO. Other factors are causing the prices to rise and I believe that we can take advantage of our resources and strategic position as the United States of America and create a more comfortable buffer between us and the ones dictating crude prices.

Dr. Tufte said...

-1 on Nate's post for a poorly formatted link.

Note that it isn't correct to say that demand exceeds supply. It is correct to say that demand is shifting faster than supply.

Will gas prices ever come down (in nominal terms)? Almost certainly they will. Will they then go up again (in nominal terms)? Almost certainly.

Will gas prices ever come down (in real terms)? This is a tougher question. We have a situation where demand is shifting to the right (the global economy is strong and growing), and supply is shifting left (due to political problems in Iraq, Venezuela and Nigeria). Also, we have a bottleneck in refining capacity - refiners are so overcommitted right now that they are buying the highest quality oil because they can turn around and sell it at a high price. Prices are very low for lower quality crude, and the spread in prices between high and low quality crude is bigger than ever, but in the current market it is the high priced stuff that is being used.

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