Gas Prices

I don’t know about you but I don’t understand gas prices. Just last week crude oil closed under $34 a barrel, but the national average for a gallon of gas rose to $1.95. Crude oil drops and gas prices rise, what’s up with that? I read an article last week that stated because Americans weren’t buying enough gasoline (and suppliers weren’t making enough revenue) refineries concentrated on refining heating oil rather than gasoline, thus driving the price of gasoline up.

This week I read another article saying that the benchmark for crude oil prices is West Texas Intermediate, and because of the recession U.S. crude oil storage facilities are loaded up with gas resulting in the price per barrel being at a five year low. So why is the price at the pump going up instead of down? The article went on to explain that most of the crude oil going into gas in the U.S. comes from overseas, so gas prices at the pump will continue to go up. They are predicting $2.50 a gallon before spring is here. They blame this on the fact that foreign oil, in some cases is $10 more a barrel than it is in the U.S. right now. But can $7 or $10 more a barrel, when prices are at a five year low, keep driving the price at the pump up? I personally think we are getting ripped off!

I thought the one gold lining for Americans, during this economic downturn, was going to be lower gas prices. We didn’t even get to take the RV out since gas prices started to fall and now they are going back up.

I want to know what happened to the basic law of supply and demand. This is Economics 101. The supply and demand model states the price of a product is determined when the quantity supplied equals the quantity demanded. When there is a surplus in supply the price should be lower, not higher, to sell the surplus. The law of demand basically says the higher the price of a product the less people demand it, so why would they continue to raise the price when the demand is already low. The only reason I can see that fuel prices at the pump would rise when the demand is low and there is an overage in supply is for greedy suppliers to increase their revenues.

I guess $2.50 a gallon is better than $4 a gallon, but I wish there was a way that we, as a nation, could demand an answer as to why it is $2.50 a gallon when it should be $1.50 a gallon or less. Maybe we should start a national consumer coalition called “WE Demand to Know” questioning some of the things that go on in this country. I’ll bet if 100,000 or better yet 1,000,000 voices asked the same question our elected officials would realize we, the working class Americans, do exist after they are put into office.

Mark Polk
Copyright 2009 by Mark J. Polk owner of RV Education 101