The Ups and Downs of Gas Prices: Rough DraftLast weekend I went to the gas station to fuel up my truck so that I could make the hour drive from Athens Ohio to my home just east of Columbus Ohio. I arrived at the pump and put $20 into my tank without really noticing the price of gas. As I began to drive away I looked down to see how much the gas needle had moved and to my dismay I saw that the I had less than a quarter of a tank. I thought back to just a few years ago when I first started driving and how $20 would give me well over half a tank of gas. As I left the gas station I looked back to see that the price of a gallon of gas was $4.19. Still in shock I asked myself why gas prices had skyrocketed but I soon realized I knew nothing about why gas prices ever go up or down.
Gas prices have been rising and falling for years now and it’s getting so bad that people (including me) are starting to think it’s ridicules. As you can see in the picture to the left, someone obviously thought the prices were so out of hand that numbers just didn’t do it justice anymore. But people have been talking about how gas prices are out of hand when there high or how cheap gas is when it’s low. What does it all mean though?
To understand why gas prices are such a mess these days you must first understand the history of the United States and its dependence on foreign oil. It all started in 1859 when the first oil well was drilled in western Pennsylvania. From there oil wells sprouted up all around the country and even the rest of the world. In the early 1900’s the united states was producing much of its own oil. With the fear that the United States oil supply was running low, people started to look more globally for oil. By the 1970’s the United States got one third of its oil supply form the Middle East (mainly Saudi Arabia and Iran). This gave them a lot of control of the price of oil as they demonstrated with an oil embargo in the late 1970’s that caused the first gas crises. Since then gas prices have been constantly going up and down with steady increase. But why?
The answer is that because oil is bought and sold on a global market. This means that as the value of the dollar fluctuates based on other countries so does the value of a barrel of crude oil. Above is a graph of the value of the dollar (in green) compared to the price of a dollars worth of oil (in blue) from January 2008 to May 2009. You can clearly see that there is a major correlation between the two. While this is a clear indication that the global market affects the price of gas there are many other reasons that people use to blame this fluctuation.
One of these reasons is that there are people in the world who will buy and sell oil based on whether they think the price of oil will go up or down to try and make a profit. These people are called speculators and many people, like President Barack Obama, blame them as the cause of gas prices. But speculators are no different than anyone taking a chance with buying stock in a company they hope to do well in and then selling it off for a profit. These speculators are usually just honest people trying to make money. You can find all of the details about how this process works by clicking on (About Gas Speculators).
Some other reasons that people blame the constant fluctuation of gas is that other countries are starting to become more developed. So many of the people in those countries are starting to drive cars all the time. Countries like India and China are starting to consume just as much oil as the United States. So people say that with a limited oil supply and increasing drivers, oil is becoming less and less available. Other people blame the Federal Government on gas prices for taxing the oil companies to refine and transport the crude oil they get out of the ground. This could be due to the national debt that the United States is facing, so the government is trying to get some money back by taxing the things us Americans consume the most of. But whatever the reason gas is still becoming a costly problem that is affecting the daily lives of most Americans.