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Originally Posted by politicophile
Prices go down when demand goes down and supply remains constant/increases, or when supply increases and demand remains constant/decreases. Neither of those two scenerios are occuring here because you are just buying the same quantity of gas from another supplier. Also, why stop at $1.50? Is there any significance to that figure?
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But that is not whats happening here. If you look at global supply and demand, which you must when talking about oil. In april 2004, a barrel of light sweet crude was around $35. Today it is over twice that. In april 5, 2004, the average price for a gallon of gas in the US was $1.96, on april 10, 2006 it was $2.88. So a 100% increase in a barrel of oil doesn't equate with a 100% increase in a gallon of gas. In the two years since oil has doubled, the average price for a gallon of gas in the US has increased by roughly 50%.
But we need to look at this globally. Since the global supply and global demand are what sets the price, right? Well using those same dates we can look at the price of gas in several european countries (Price of a gallon of gas in $US) and we find that:
- Belgium +29.5%
- France +22.6%
- Germany +14.8%
- Italy +18.9%
- Netherlands +20.6%
- UK +14.8%
- US + 46.9%
I'm not convinced that the US demand for gasoline has risen by twice as much as europe's demand for gasoline over the last 2 years. I would wager to guess our demand has remained constant, or increase slightly with time. Something is amiss and I'm not sure what it is. But I don't believe it is soley supply and demand.
Based on supply and demand there is no rationale for oil to be $74 a barrel. Speculation is what drives up the cost of oil, not demand-v-supply. Speculators fear a crisis with Iran and bid the price up. All the prices we hear about are futures prices.
Less than a year ago, for about a week we were paying roughly the same price for a gallon of gasoline, but we were told it was due to distribution problems due to Hurricane Katrina. Well, here we are paying the same prices and I don't see any distiribution problems.
Have we built any new refineries in the past few decades? No. Do we have unnecessary taxes on gasoline? Yes. Do we have unnecessary regulations on mixtures and other nonsense that vary from state to state? Yes. Do all these things create higher than necessary gas prices? Of course. But they don't explain why the price of gas in the US has risen at twice the rate a gallon of gas in europe costs, and I'm not convicned US demand has risen enough to validate such price increases.
p.s. here's where I got the gas prices to run the little price increase analysis:
http://www.eia.doe.gov/emeu/international/gas1.html