Mr. Giesler Economics

Why Are Gas Prices So High?  High gas prices are generally caused by high prices for crude oil, which accounts for 55% of the price of gasoline.  Distribution and taxes influence the remaining 45% of gas prices.  Usually, distribution and taxes are stable, so that the daily change in the price of gasoline directly reflects oil price fluctuations.

RegularMidPremiumDiesel Current Avg.$3.910$4.030$4.142$4.316 Yesterday Avg.$3.897$4.015$4.129$4.305 Week Ago Avg.$3.864$3.983$4.094$4.289 Month Ago Avg.$3.695$3.825$3.939$4.211 Year Ago Avg.$3.443$3.556$3.667$3.852 New York Average Prices Source: AAA Daily Fuel Gage New York Average Prices

 Oil prices are set by commodities traders who buy and sell futures contracts on the commodities exchanges.  These are agreements to buy or sell oil at a specific date in the future at a specific price.  Commodities traders can create a self-fulfilling prophecy by bidding up oil futures prices. Once this starts, it can create an asset bubble. How High Oil Prices Effect What We Pay At The Pump

Vocabulary Terms  Futures  Commodity Exchange  Asset Bubble

 In April 2011, fears about unrest in Libya and Egypt sent oil prices up to $113 a barrel.  In May 2011, as oil prices dropped, gas prices stayed high. Why? Commodities traders were concerned about refinery closures due to the Mississippi River floods.  In the summer of 2008, gas prices rose to $4 a gallon as oil prices skyrocketed to $145 a barrel, even though demand and supply were fairly constant. When Else Have Gas Prices Been High?

 In summer of 2009, gas prices again rose, despite the recession, which decreased demand. Commodities traders were the reason for both.  Gas prices also usually rise during the summer vacation season, as driving increases.  Gas and oil prices also increase whenever there is concern about surging demand from China and India, or a curtailment of oil supply. When Else Have Gas Prices Been High?

 Like most of the things you buy, oil prices are affected by supply and demand.  However, oil prices are also affected by oil price futures, which are traded on the commodities futures exchange. These prices fluctuate daily, depending on what investors think the price of oil will be in the future. When traders think oil will be high, they bid it up even higher. This soon causes high gas prices. What Is the Biggest Factor in High Oil Prices?

 Another reason for high oil prices is the declining dollar. Since oil is denominated in dollars, the 40%decline in the dollar in the last six years puts upward pressure on oil prices. What Is the Biggest Factor in High Oil Prices?

 Sometimes commodities traders drive up the price of oil, even when supply increases and demand falls.  The EIA cited an increased flow of investment money into commodities markets.  In other words, money that used to be invested in real estate or the global stock market is now being invested in oil futures. What Is the Biggest Factor in High Oil Prices?

 The summertime vacation driving season usually increases gas prices by an average of ten cents per gallon. This price increase is despite the increased use of ethanol.  Gas prices usually go down in the winter, since transportation needs are lower. This even offsets an increase in oil usage for winter heating in the Northeast U.S. What Makes High Gas Prices Go Down?

Small Group Activity Working cooperatively, develop a strategy that our nation could implement in order to:  Reduce what we pay at the pump  Reduce or alleviate the United States dependency on foreign oil  Describe how and why your recommendations will work