Gas Prices

Josh B:

it’s to boost other sales. it’s likely to go up after christmas

Duke O:

I think some American diplomat went to the sheik of Bahrain’s palace and grabbed the Sheik by the balls and said to him

“lower the oil prices or ill pull them off and remove you from power like we did to you’re half cousin Saddam”

K K:

Several reasons:

1) Price of oil, by barrel, is dramatically lower, on the order of a third of the price it was when gas was $4+. This effect takes a little while to reflect in markets, because the US’s bottleneck is the refining of gasoline rather than importing enough oil.

2) Lower demand. Americans are just driving less. I heard a figure that Americans drove something like 10 billion less miles last month (last quarter?) than they did the previous year at the same time. Supply and demand.

3) And now for the supply portion… There have been no major problems preventing refineries from producing gasoline or the oil companies from importing enough oil to refine. Prices spike after storms (like hurricanes, because a lot of the refineries and oil drilling platforms are in or near the Gulf coast) or if a refinery has to shut down for any reason (it happened a few years ago in Texas), or if there’s any threat to the US’s supply of oil (OPEC recently said they had agreed to lower the production of oil for export – gas prices held steady and in some cases went up slightly despite the overall down trend after the news).

Additionally, gas prices can spike incredibly high in a localized area if there’s a problem with supply. Here in Arizona, there was a problem with a pipeline a few years ago that caused gas prices to spike over $.50 overnight (I think they were $1 higher over the course of a weekend) in Maricopa county (where Phoenix is located). However, if you drove just into another county (which I did), there were no gas shortages and much lower prices. This is a combination of lack of supply with increased demand (everyone wanted to get gas “while they could”).

4) Gas prices are also lower due to the US dollar being stronger. I remember hearing that several of the countries we import gas from no longer base their currency off the USD due to recent weakening. Now that our dollar is stronger (not necessarily because we have a stronger economy so much as that everyone else’s is weaker), it’s cheaper to buy oil and thus produce gas.

This effect will continue as people continue to change from investing in other countries (such as those using the Euro) to our country and securities therein, since we look more attractive and “safer” than other countries. Speaking of “safe,” oil prices are also effected by people no longer investing as heavily in securities having to do with oil due to volatility.