What's Causing Crazy Gas Prices?
posted by Ben Engebreth on 05.07.2005
Well, first off, gas (and oil) prices have backed off significantly as of late. It's likely that we've already seen the peak of both for this year. However, oil is trading above $50 a barrel and the cost of gasoline is still relatively high (though at least not continually rising as before).
Still, people want to know who's responsible for these high prices? There's an interesting article on CNN which reports on surveys done by CNN & company finding that most people are predominately blaming oil producing countries, oil companies, and the president. I think the most interesting statistic though is that 78% of those polled called gas prices "not fair."
While I completely sympathize with anyone who is suffering from the economic impact of higher gas prices, I think it may be going a bit too far to call gas prices unfair. It's easy to forget that oil & gas react to market forces just like any other commodity that experiences real (or perceived) scarcity, and markets try to price things as fairly as they can (though there's no arguing that bubbles sometimes exist).
Retailers are constantly competing to bring goods and services to their customers at better and better prices (often by reducing quality or durability it seems). For better or worse, this doesn't happen with oil & gas. There was a period of time were gas seemed to be getting cheaper and cheaper -- I remember it being in the 70 cent range in Georgia around 1997 -- but that was certainly an anomaly. I'm just guessing here, but I think some of us may have thought that gas prices would behave in the same way -- that things were "solved" with regard to gas prices and that we had figured out how to keep things reasonably priced through competitive markets. This doesn't appear to be the case.
If I were polled, I would have blamed speculation of future demand growth outpacing supply growth as the reason for the recent price increase. You can't really pin that on anyone, and you can't really have anyone fix it. That's not to say that there isn't a solution to the problem, but the solution probably isn't going to come by finding a way to make gas cheap again. The solution is to do more with less. And I don't mean do less and also use less but really do more with less.
There's cool quote here where a GE executive says that "We're at a tipping point where energy efficiency and emission reductions also equal profitability." I think he's likely right. The next decade could be one where individuals and companies that are aware of the financial benefits of energy efficiency have a distinct advantage over those that don't (Toyota vs. GM). People have been predicting it for a while, but maybe that time has finally come.
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