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In case you haven’t been following the market lately, or haven’t been paying too much attention to the news, the price of a barrel of crude oil hit a record high of $78.77 on August 1. The primary driver behind the price of oil hitting a record high was the news that the United State’s oil supplies unexpectedly dropped by 6.5 million barrels, thanks in large part to increased refinery output.
And while this hasn’t drastically affected the price of gasoline at the moment, it is certainly to be expected that the increased price in oil will trickle down and cause a gasoline price spike. All you have to do is look back at last summer and see that a spike in oil prices tends to lead to a spike in gasoline prices.
But, wait a second though. Didn’t our gas prices jump over 40% from February to the end of May due in large part to refinery shortages? Now that refineries are maximizing capacity, our prices are going to jump again?
What gives?!? It all goes back to one simple word: DEMAND. Our constant and ever increasing demand for oil based products (especially gasoline) has put us in this lose/lose situation.
Earlier this year, the national average price for a gallon of regular unleaded gasoline jumped over $1 in the span of four months mostly due to fears that our old (and apparently fragile) refineries would not be able to produce enough gasoline to meet our demands. Several major refineries throughout the country – especially on the west coast – were beginning to show their age and needed to reduce output in order to undergo repairs.
Now, as our demand has continued to increase throughout the summer travel season, and refineries capacity is essentially running at full strength, we need more oil to make enough gasoline. Unfortunately, there’s only so much oil we can get at one time; and once supply is overpowered by demand, prices aren’t going anywhere but up.
And because the price of oil makes up about 50% of the price of gasoline, well, you get the point.
Long story short, the only way we’re ever going to see a significant drop in gasoline prices is if we find some way to reduce our demand. Whether it’s buying a more fuel efficient vehicle, getting more out of your current car’s gas mileage, or simply not driving as much, we have to find ways to reduce our lust for gas.
Either that, or we’d better be willing to pay $4 or $5 per gallon in the not too distant future.
{ 3 comments… read them below or add one }
I always thought that the refinery excuse was just that, an excuse. The recent situation just proves that – the public needs a reason other than “We use too much gas, and world demand is increasing, so use less”. I’m not sure the US public can really handle that just yet.. but maybe soon.
Within the past few weeks, I’ve 2 out of 5 gas stations I’ve tried to use had ran out of regular gas in southern california. These are the first times I’ve seen this. Are the prices too low to keep track of demand? I don’t mind paying more for gas, as long as I don’t have to drive around to find a station with available gas.
The stations had premium gas available, but I’m always using Flexcar and they require that I use regular gas.
Ouch – I’ve never come across an empty gas station ( at least not yet ). That’s very scary, especially if you’re running near empty.