2/27/2008

Rising Gas Prices

There is great speculation that rising gasoline prices this spring will lead to a decrease in demand as consumers have to spend more of their budget on filling up their tank. Though gas prices have been high for some time, the article claims that with the threat of a recession, consumers will be more conscious of price. It will be interesting to see if consumers 1) change their driving habits to save on gas, 2) cut back on other products to be able to spend the same on gas, or 3) if we continue to spend on both gas and other products despite the high prices.
Also, even if Americans cut back on consumption and demand stays stagnant in the US, the Middle East and China will continue to drive up demand which means prices are going to rise. With this situation, John B. Hess claims there is "[a]n oil crisis coming in the next ten years" due to both demand and supply.

7 comments:

Emma said...

Rising gas prices is something you hear about everyday. In my opinion, Americans are starting to get used to the higher prices, so price fluctuation is not affecting people's decisions as much as it used to. Another important point to take into consideration is that there are more fuel efficient cars on the road. People can now take trips and spend almost half of what they used to spend on fuel because of the better gas mileage. This decreases the demand for fuel. However, with the low supply of fuel driving prices up, these two situations cancel each other out. The demand for fuel will still increase this summer, just as it has in past summers, because of the increase in travelers and vacations. The higher fuel prices may impede some travelers. However it will only be a small percentage of the total number of vacationers.

Dr. Tufte said...

I'm not too concerned about this - a price spike in the spring as refineries retool for summer blends is common and occurs every year.

Gavin said...

Extra Credit - Dr. Tufte
The spring and summer rises are not a big concern for me either. Oil refineries make their money not when prices rise but when they go down. The price of oil drops faster than the price of gas which allows refineries to make money during this time. The prices will inevitably go down later in the year.

Trinity said...

This comment is mostly in regard to the ending quote about an oil shortage in 10 years. I think this is silly speculation. If oil continues at these rates for the next 10 years, new sources of power will become feasible and will fuel the cars of tomorrow. Hybrids and hydrogen cars are already on the way and could be a common thing in households in 10 years if prices stay high. I'm not too worried.

Reagan said...

Dr. Tufte-Extra Credit

I don't think the retooling of refineries and the increase in gasoline prices due to this is what we should be worried about. People come to expect this every year. The issue is the constant increase in oil prices and the threat of a recession. If they United States is in a recession, which we will probably know by June-July, and if oil prices continue to climb then I believe the demand for gasoline will go down. I don't have a prediction for what will happen if this scenario comes true other than more people will be staying home this summer. You never know, the local economies may get a boost as people stay home and spend their money there.

TheFindlay said...

Dr. Tufte
I am concerned about his because it does not appear to be a routine retooling situation. The cost of oil per barrel is at $114. For heaven’s sake oil shale is now affordable to produce! I wish the government would take away all of “Big Oil’s” patents that take innovation out of the automobile industry. We have the alternatives they are just controlled by the oil companies.

Dr. Tufte said...

A lot of what we are seeing now is a movement by investors into commodities, because of uncertainties in financial assets.

Amongst commodities, oil isn't even spiking that much.