This blog contains posts and comments written by students in Dr. Tufte's economics classes at Southern Utah University.
3/23/2007
How high will gas prices rise?
A recent article in CNNMoney discussed the impact that the capture of fifteen British Marines had on crude oil prices. This caused me to consider the volatility of gas prices. We have seen how many different factors affect the price of crude oil, including supply, demand, war, government, and others. With spring coming upon us, consumers have begun to watch gas prices very closely. We all seem to wonder if and when gas prices will rise above three dollars per gallon. Some analysts predict that prices will not get as high as last year. They say that consumers are more price conscious and are finding ways to reduce gasoline consumption. However, it seems to me that gas prices are already creeping up pretty fast. Demand in China is growing and the war in the Middle East is far from being over. With growing economies, rumors of wars, and corrupt governments throughout the world, the price of crude oil seems to be unpredictable. We could be in for a roller coaster.
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4 comments:
I agree. The prices for gas are just going to continue to rise. I don't believe that people are more price conscious about gas. Everybody just goes to the pump and fills up. They don't even think twice about it. Because of this and the volatility I believe that gas prices will once again surpass the three dollar mark.
I agree with Sebastian when saying that prices are being watched closely. Although when already at the gas pump and the tank is empty, the gas station is a monopoly and consumers will pay that price. Consumers can make some choices after that, for example in the short run they can fill-up the tank only partially or they can ride a bike or walk more often. In the long run consumers can also trade-in gas guzzlers for more fuel efficient vehicles.
We will still see consumers filling their gas tanks, but we may see them filling them less often the more sensitive they are to the price. Then as factors change and the price of gas decreases, we will see the opposite.
Three years ago, I was strongly in the camp of thinking that prices would come down, but now I'm not so sure: demand is too strong globally, and supply is too weak.
On the other hand, the run up in prices at this time of year is a seasonal that occurs every spring - we will definitely see a drop later in the spring, and then another rise in summer.
Dr. Tufte- Thanks for your insight. What do you make of the prices now? It seems that oil will never again be under $100. Once the companies went over $100 and saw it was still profitable and demand didn't change much when prices were that high, why would they ever come back down?
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