Gas Prices

In this paper I will analyze and evaluate possible economic influences on oil and gas within the United States. Many people have been confronted with gasoline prices that are either emptying their wallets or keeping them at home. Since Hurricane Katrina hit the gulf coast in September 2005, gas prices spiked to over $3 a gallon. There are many speculations on what determines these prices and who controls them. Many of these speculations are myths, but few are fact.

In today's modern day economy, the price of gas directly relates to the prices of other goods and services. Gasoline provides transportation for much of the world's goods and services. Either by airplane, truck, or rail, oil energy is used to move those products. When the price of gas increases, the price of the goods that rely on it will also increase. One of the conceptions that many people have is that gas stations are gouging gas prices. In our capitalist economy, the market determines the gas prices. Most often, gas stations are updating their prices on a daily basis, based on what they had to pay for it the night before to fill their underground tanks. Jon Birger from Fortune Magazine explains that gas stations receive low to no marginal profits from their sale of gasoline. Many stations rely on the food products that they sell in their convenience stores. The sale of coffee and snack cakes provide the profits they need to continue to sell gasoline.

A second theory that Americans have is that we are rapidly depleting the earth's supply of oil. This assumption is somewhat factual. We consume massive amounts of oil every day. Being that oil is a non-renewable resource, there will come a time when we will not be able to recover enough of this back gold to meet our economy's demand. New technologies, however, are still being developed as we continue to surge our way through the world's oil supply. The fight towards the conservation of oil has long been underway. Since the 1980s the United States has been conserving its oil reserves and importing other countries oil to fuel the American transportation fleet. Present day United States imports 60% of the oil it consumers each year to offset what is saved in our reserves.

A third idea is that government intervention is required in order to bring gas prices down. I could not disagree more. As proven in past events, any time the government steps in to regulate prices, the economic