Why Are Gas Prices So High?
Why are gas prices so high? The question is being repeated over and over as people watch in amazement as they creep up and up at the pumps.
Why are gas prices so high? The most cynical among us would most likely insist that they are up so high because of the greed of the oil companies. They view it all as a world wide conspiracy that begins with OPEC and carries right down to the owners of the local gas stations. In a society that has become so used to the mobility that cars have given us, the cost of a tank of gas becomes something we must endure. Cartoons joke about banks setting up loan offices at the gas pumps, but still the prices rise.
Demand might have something to do with it. Most commodities and their markets have always operated in a manner that was strongly influenced by the law of supply and demand. This law would suggest that as the price rises, less gasoline would be sold. This decrease in demand would cause prices to lower as the supply increases. As prices lower, people would purchase more, supply would decrease, and the cycle would begin again. It sometimes seems that this cycle is working as we watch prices lower. However, the up and down movement of price is seems seasonal and that fuels the conspiracy theories.
Since the summer is the time for vacations and travel, prices seem to rise in the spring. The relationship still has to do with supply and demand, of course, but it seems to be deliberate rather than natural. Yet, the culprit and the answer is hard to really grasp because of the complexity of the whole process. The journey of gasoline from the oil well through the refineries to the pump is a very complex process. There are many entities, middlemen, and factors that all act to influence the final price. Changes in these factors can all act on the price.
These factors are political. Political unrest in oil producing areas, something that has been fairly common can create price increases and impact supply. These factors are also economic. Oil is a commodity and its price is determined by a market that is tied to the state of the economy of virtually the entire world. Any number of economic events can influence the price of this commodity. Even weather can play a role. The damage to refineries during the recent rash of hurricanes on the Gulf Coast led to a ripple effect on gas prices.
There are indications that the upward trend is beginning to have a more natural impact on demand. As much as people are tied to their mobility, the tightness of the economy has forced so many drivers to reduce their driving that demand is dropping at a faster rate than it has in the past. This also creates a ripple effect. The economy suffers as people stay home and this results in lost jobs and the economy becomes tighter. High gas prices are not a problem likely to go away soon and there is a real good chance that the law of supply and demand might again assert itself as the true controlling factor.