Why have gas prices jumped?

Date posted: May 26, 2014

Gas prices rose about 40 cents a gallon between last November and this spring. There are always many theories explaining movements in gas prices, says host Mary Walden.  Which one makes most sense to you, she asks her husband, NC State University economist Dr. Mike Walden.

Mike Walden: “And of course, gas prices do move around, Mary, and I wouldn’t be surprised to see that 40 percent jump pull back a little bit. But you’re absolutely right.  The trend in gas prices has been higher for about 6 months. In economics we always look at supply and demand. On the demand side, with an improved economy, not just in the U.S. but worldwide, people are beginning to drive more. Factories are using more fuel. So, we’re having an increase in the demand for things like gasoline. Now on the supply side, many people might think the U.S. has really boosted its supply of oil and of course, oil gets refined into gasoline. So, isn’t the supply situation good? Actually not so much. Yes, U.S. (oil) production has gone up. But foreign production, the rest of the world has actually gone down or at best stabilized. If you really took out the U.S., we’d have a big gap between supply and demand. So, I would argue that we’ve got that classic economic scissors going on with respect to oil and gas prices: higher demand, supply not keeping up.”

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