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.

5 comments:

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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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