Everyone is aware that prices for gasoline at U.S. pumps are climbing rapidly, but no one really seems to know why. Demand for gas is down and despite major producers like Saudi Arabia slowing production, there is ample global supply already in reserve. The U.S. is now producing more oil that at any point in the past several decades, but the price of oil and refined gas continues to climb. Some analysts point to Wall Street speculation, while others try to pin-point real world factors that might be causing the spike.
Tensions in oil-producing regions like Iran and Syria are a favorite topic of discussion, as is seasonal refinery maintenance in parts of the U.S. Of course, we've heard the seasonal refinery maintenance piece in the past, but for some reason it was at an entirely different time of year. The reality is that gasoline prices are going to be market-driven, and they are always going to find the highest price point at which consumers will buy it without disruption. This is the new normal.
In the short term, demand for gas is inelastic. People will buy it at the same levels at any price in the near term to avoid disruption in other areas of their lives. Most people won't immediately switch to public transportation in the midst of a gas price spike because doing so would be inconvenient and impractical. Gas prices would have to remain uncomfortably high for an extended period of time before consumers would truly alter their consumption patterns. Generally speaking, we're using less gas per capita than at any point in recent history, but the price is continuing to rise.
With increasing media coverage about high gas prices, look for the political rhetoric to follow, which will probably - magically - result in a slow decline in gas prices. They'll push up again soon to ensure that the maximum amount of stress is placed on American consumers. If you can't figure out who benefits from high gas prices, it's time to think harder about that issue.
Tensions in oil-producing regions like Iran and Syria are a favorite topic of discussion, as is seasonal refinery maintenance in parts of the U.S. Of course, we've heard the seasonal refinery maintenance piece in the past, but for some reason it was at an entirely different time of year. The reality is that gasoline prices are going to be market-driven, and they are always going to find the highest price point at which consumers will buy it without disruption. This is the new normal.
In the short term, demand for gas is inelastic. People will buy it at the same levels at any price in the near term to avoid disruption in other areas of their lives. Most people won't immediately switch to public transportation in the midst of a gas price spike because doing so would be inconvenient and impractical. Gas prices would have to remain uncomfortably high for an extended period of time before consumers would truly alter their consumption patterns. Generally speaking, we're using less gas per capita than at any point in recent history, but the price is continuing to rise.
With increasing media coverage about high gas prices, look for the political rhetoric to follow, which will probably - magically - result in a slow decline in gas prices. They'll push up again soon to ensure that the maximum amount of stress is placed on American consumers. If you can't figure out who benefits from high gas prices, it's time to think harder about that issue.