High Gas Prices
High Gas Prices
Jordan Goodman (Personal Finance Author) gives expert video advice on: Why is gas so expensive?; Why aren't gas prices regulated?; Do Americans get gas cheap? and more...
Why is gas so expensive?
Gasoline is so expensive because it is based on underlying price of oil. oil is going up so dramatically because there is a basic supply demand imbalance for oil. The large oil fields around the world in Saudi Arabia, Mexico, and Venezuela and Nigeria have been declining for many years and we are not finding huge new amounts of oil to replace those huge oil fields. So in general, the supply has been coming down. Meanwhile the demand has been going up dramatically, not only in the US where we still have lots of SUVs and various gas hogging vehicles, but particulate in China, India, Indonesia, and other developing countries. They used to take bicycles and now they have cars or buses. They are building many new factories, new apartment buildings, new stores, and all of this takes a huge amount of energy, so the demand is just going up dramatically at the time that the supply is peaking or coming down and that is why oil has gone up so dramatically and it translates into gasoline. At the local service station, the retail price of gas is partly oil, its a lot of taxes as well; state, federal, and local taxes are a big part of what you pay for gasoline. So, its high and its going to keep going up. The best solution is to have some kind of a fuel efficient car, where at least you can make the most of the gasoline that you are buying.
Why aren't gas prices regulated?
Gas prices aren't regulated because when you put artificial price limits on them it creates all kinds of distortions in the marketplace. That's been tried in the past. In the 1970's for example, natural gas was regulated, the price of it, and the result was incredible shortages because if the price is capped, then producers don't want to produce more of it. So it's difficult to see prices go up, but in a certain way it's better to have the free-market set those prices than to artificially have the government do price controls. It's been tried around the world in many countries over the years and it just always distorts markets and ultimately makes things worse for consumers.
Do Americans get gas cheap?
Americans get gas much cheaper than many other places in the world. If we get three dollars a gallon in Europe it might be six and seven dollars a gallon. In Japan, it's also very high. They don't have domestic sources of oil the way we do to some extent. They also have much higher taxes on gas than we do. So even though you may be complaining about three dollars or so a gallon it's half or less than half the price of what it is in many other areas of the world. So it doesn't seem cheap but relative to other countries it's definitely cheaper here.
What happened to the oil glut we were supposed to get from Iraq?
People said after we invaded Iraq and took them over that we were going to have an Oil Glut from Iraq. But, in fact, they're not producing that much, maybe six hundred thousand barrels a day which, when you consider the whole world uses eighty-five million barrels a day is not really that much. The oil is there, but their facilities are very antiquated. And they keep getting attacked so, you know, it's not a very reliable kind of source of Oil And it just takes a long time to build up the infrastructure to get the Oil out of Iraq. So, a lot of it is being used in that area, we're not getting much Iraqi oil in the United States. It's just been producing a lot less than people expected. There were talks, at one point, of having three million barrels a day coming out of Iraq. But now it's five or six hundred thousand barrels a day. And so it's a source, but nothing close to what we thought it was gonna be.