As I was driving home yesterday I drove by three gas stations and noticed that gas prices are continuing to rise. When I get gas a have to put premium in my gas tank and as of today that costs me $2.85 a gallon, which is ridiculous. When I got to my destination I asked some of my friends if anyone knew why gas prices were rising but no one could come up with an explanation. This is a very frustrating topic to me because as of right now I can not come up with a good reason why prices are always getting higher.
In 2003, we went to war and gasoline prices rose, but this was really not a surprise to anyone. However, when I look back it still does not make complete sense. People were always saying that the reason prices were going up was because we went to war with Iraq and we got oil from them. We do get oil from Iraq however; we only receive 5% of our oil from them. The country that we receive the most of our oil from is Alaska and we did not have problems with them at this time. Why then did oil prices rise? Gas prices have been pretty much stable since late 2004 and now all of a sudden gas is becoming way too expensive once again.
Another explanation I always hear from people is that we are running low on oil. I do not believe this because of two reasons. First of all, we have millions of barrels of oil in reserves and who honestly knows how long these reserves would last us. I have heard so many different numbers of years from many different people. Scientists make predictions about how long these reserves would last but there are so many different predictions that I really don’t listen, because no one really knows. The second problem I have is when people try to tell me that we have X number of years of oil left. Who really knows how much oil is left on our planet? Companies find new locations of oil all the time so I honestly couldn’t care less about these scientists’ guesses. People are always making predictions, but to me all they are doing is making an educated “guess.” A prediction is nothing but a guess because a prediction has to due with the future and no one knows what other variables could come into affect.
If I had to answer the question, “why are gas prices rising?” my answer would be, “I believe that our government needs more money to fund the war and the easiest way to do this is by raising the price of something that is a necessity to everyone in our country. No matter how high prices go people have to be able to get to work and school, so they will have no choice but to continue to pay whatever they have to in order to get gas.
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One of the variables influencing demand and supply is expectations about the future. When the Iraq war began, people perceived great uncertainty about what might happen to the supply of oil, and this works out to a higher risk premium in the short run.
There are of course several other factors at play, some of which are seasonal, and some of these seasonal price changes are actually the result of public policies with respect to environmental regulations.
There may be several factors in play right at the moment, and one of those would again be uncertainty with respect to the future. With Iran taking British troops, there is now considerable uncertainty, it seems to me, about whether there will be military responses which bring out the concern for reduced supplies of petroleum to the world markets.
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