Rising gas prices
Date posted: February 7, 2011
Just as we are beginning to get some good news about the economy and jobs, up rises the ugly head of higher gas prices. Why are gas prices going up? N.C. State University economist Mike Walden says it’s because demand is greater.
“First a little history … Do you know that in late 2008 gas prices went under $2 a gallon — in fact ,down around $1.75 a gallon — and since the beginning of 2009, they have slowly inched their way up. I think recently people have noticed, obviously, because they have topped $3 a gallon.
“Well, the main reason is the improving economy. When the economy was really bad in 2009 — that was the depth of the depression — what we saw was people weren’t driving as much, businesses weren’t delivering as much, so gas usage went down. In fact, in terms of how much oil we used, we used 750,000 fewer barrels of oil a day during the depth of the recession.
“And in economics when you use less of something, usually the price of that comes down. So I think fundamentally that’s why gas prices went down.
“Now since the beginning — the middle, I should say — of 2009, as the economy has improved and we’ve seen big improvements in manufacturing, for example, we’ve seen deliveries go up, we’ve seen a million more people working, so more driving.
“It should make sense, hopefully, to people — although they might not like it, but it should make sense — that gas prices have gone back up. So we are sort of back to where we were before the recession began.
“Now a big question, of course, people want to know is, Are they going to go higher? My guess this year — and it’s only my guess. because this is very hard to predict — $3.50 a gallon would be the tops. I don’t see $4 a gallon this year. I think $4 eventually will come about, but I think $3.50 a gallon
“What you are going to hear more of this year, of course, is alternatives: so hybrid cars, electric cars, alternative fuel — all those are going to come back into popularity with higher gas prices.”
Category: Economic Perspective