Gas prices up again
Date posted: March 30, 2012
To paraphrase a famous politician, Here we go again. Just as there are some glimmers of hope for the economy, drivers are getting hit with higher gas prices. The question is always why. N.C. State University economist Mike Walden answers.
“Well …, actually economists are in a fair amount of agreement on this. Of course, in economics whenever a price changes, we look at both demand and supply. And on this matter the essential answer is that the demand for gas — and actually it’s really a derived demand for oil — demand for oil is going up faster than the supply.
“And here’s what’s happening: On the demand side, the economy has been improving. Clearly not improving as fast as many people would hope, but it is improving. And very importantly when you talk about the oil market, it’s the world economy, not just our economy. And so countries around the world, as their economies improve, they’re using more energy. That usually translates into a greater demand for both gas and oil.
“On the supply side, two things are happening. One, supplies in general — even in good times — are not keeping up with the rising levels of demand. And secondly, we have a big worry right now in the oil market, and that is, Could we have an attack in the Middle East — that is, a fight between, in particular, Israel and Iran, which could not only disrupt oil supplies from Iran but could disrupt oil supplies from that part of the world in general.
“And what’s happening is that buyers of oil try to pre-buy, because they worry if this happens that’s going to send prices even higher, so they try to pre-buy oil in their ways to do that. And of course that makes the demand even higher now and sends the price up even more.
“So, anything that happens in the world right now that would reduce tensions in the Middle East would help us with gas prices.”
Category: Economic Perspective