Drivers in Atlanta and around the country are noticing
rising gas prices. According to
historical data from Atlantagasprices.com,
the Atlanta average gas price is now $3.588, even higher than the national
average of $3.543. Atlanta area gas
prices have risen over 13 cents per gallon in the past month and almost 50
cents per gallon in the past year. A
year ago, Atlanta gas prices were almost 10 cents below the national average. Economists predict that $4 gas will be a
reality this summer and could rise even higher.
In the past half century, oil prices have historically fallen
during recessions and then climbed again as the economy improved. This pattern
was seen in 2008 as
gas prices fell from record highs in the summer to sharp lows after the
onset of the economic crisis in August.
According to this historical view, gas prices could be expected to rise
as the economy recovers.
The problem with this theory is that, as Dick Morris
recently pointed out, the current economic recovery is an illusion. Changes in the way financial metrics are
calculated and cherry-picked statistics mean that while a recovery appears to
be underway statistically, the reality is that most Americans are not
experiencing it. As Morris notes, the
stock market may be up, but the volume of trading is down because most ordinary
Americans are no longer in the market. The
housing markets are still not recovering four years after the real estate
bubble burst in 2008. Housing starts are
still at 20 year lows according to the National Association
of Home Builders. Foreclosure rates
are up while the average sale price of homes is down according to RealtyTrac. Georgia remains one of the highest
foreclosure states.
Even though the U.S. economy isn’t in recovery, other countries are doing better. Growing economies such as that of China are demanding more oil, which causes the price to increase around the world.
In the absence of a recovery, there are other reasons for
the increase in gas prices. One obvious
factor is inflation. According to a
January 2012 report from the Bureau of Labor Statistics,
the core inflation rate was only 2.3 percent in 2011. This rate does not include food and energy,
however. Energy costs have risen by 6.1
percent over the past year, while food costs are up by 4.4 percent.
One reason for the inflationary costs is the Federal Reserve’s
policy of quantitative
easing. The Fed has tried to
stimulate the economy by injecting more dollars into the economy. A basic principle of economics is that when
supply increases, price decreases. In
the case of quantitative easing, this means that as the Fed orders more dollars
into the system, the value of each individual dollar decreases. Each dollar buys less as a result. This means that interest rates stay low,
which helps borrowers. A problem,
however, is that imported goods, like barrels of oil, cost more dollars because
each dollar is worth less.
Another factor in the rising oil and gas prices is the
unrest in the Middle East. Oil prices
often rise and fall with tensions in oil producing regions. The Iranian nuclear crisis is bringing the
region to the brink of war with the possibility of an Israeli strike on Iranian
nuclear facilities. Secretary of Defense
Leon Panetta told GasBuddy.com
that if Israel attacks Iran oil prices, currently at about $100 per barrel,
could go anywhere “between $200 and pick-a-number.” There is also a civil war raging in Syria and
unrest in Egypt in the aftermath of the Arab Spring revolt there. There is also uncertainty over the future of
Afghanistan and Iraq, another major oil producer, as U.S. military operations
in those countries end.
Other factors are at play as well. The Obama Administration’s decision to cancel
the Keystone pipeline means that American refineries are denied a source of
cheap oil from Canada. Similarly, Obama
has made it difficult
and expensive to drill for oil domestically and off U.S. shores, which
means that the supply of oil is artificially limited, keeping prices high. Ironically, the oil from Canada that would
have gone to U.S. refineries is likely
to go to China after President Obama’s decision.
Other factors, such as weather and refinery closures can
also affect the supply of oil and therefore the price. These factors are reported and analyzed
weekly by the Energy Information Administration
on its petroleum page. For example,
there have been several Caribbean refineries that previously sent gasoline to
the U.S. east coast have closed recently according to the February 23 report.
In the end, there are only two ways to reduce the price of
oil and gasoline. Either the supply must
be increased or demand must be reduced.
The Obama Administration is taking only token
steps to expand oil exploration and drilling, while demand continues to
increase around the world. Demand will
likely continue to rise unless the upward pressure of oil prices or some other
factor causes the world to slide back into recession.
This article originally published on Examiner.com:
http://www.examiner.com/conservative-in-atlanta/why-gas-prices-are-going-up-1
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