We all know that in the last few years, and the last month in particular, gas prices have been hitting new pinnacles causing holes to wear out our pocket books and placing additional pressure on the political forefront to come up with a solution. A prominent hot button issue we are now seeing candidates on both ends promising change. Despite individual political affiliation, one thing is for sure, all of us are speculating how they are going to do it?
To better serve your businesses, we at the U.S. Green Chamber feel that its necessary to deconstruct why gas prices rise and what politicians are weighing in order to follow through with their promises. Here are just a few factors.
- Supply and Demand. Gasoline consumption has been falling in the United States, and is currently at an 11 year low. According to supply and demand, that should lower prices right? Wrong. Oil is a globally traded commodity, and if we don’t buy it, someone else will. Think China, India or a host of growing economies. So while US demand drops, the Global demand for oil continues to grow.
- Political Strife. Speculation for oil adds at least $10 to the price of a barrel of oil. Oil prices began climbing last year with the start of the so called Arab Spring and unrest in oil producing countries like Libya. Now this year with Iran threatening to close the Straight of Hormuz, where 1/5 of the worlds oil passes each day, gives oil traders a reason to fear supply disruption, in a really, really big way. That all leads to higher prices.
- Seasonal Increases. We may forget, but gas prices tend to climb this time of year anyway. Starting in the spring time, refineries have to switch over to producing cleaner burning fuels to prevent smog formation as things warm up. These fuels cost more to make. Also spring and summer are generally busier driving seasons and demand increases, leading to a rise in the price of gas. Normally prices don’t jump so high so early, but this is still a factor.
- Sourcing. Increasing US production has not lowered the price of oil. Discoveries of Oil in North Dakota among other places has led to a growth in domestic production. In fact it may have caused gas prices to increase. The reason for this is that ‘fracking’ and all of the new natural gas the US has begun producing has lowered natural gas prices significantly. Cheap natural gas allows oil companies to run refineries for less and allows them to produce gasoline for much cheaper than competing refineries in other places where natural gas costs more. So those countries buy refined gasoline from the US on the global market, and increased demand leads to higher prices for everyone.
So how does this effect those on the campaign trail? Some candidates have been pointing fingers while others have been claiming that if he they are elected president gas will be $2.50 a gallon. To steal a line from one individual, that is “Pure Bologna.” A majority of energy price experts agree that the President can do little if anything to control the price of oil. Also that the Keystone XL pipeline or expanded offshore and onshore exploration for oil would have little effect either.