Why Are Gas Prices So High?
Even though I work in insurance, I also happen to be a car guy as well as someone that has a side interest in commodities. One of those commodities is Oil. Invariably, I get asked, why are gas prices so high?
The answer to that question is market perception. You see whenever the oil price rises, gasoline speculators, that is people who make a living buying and selling gasoline on the commodity exchanges and the gas companies believe the price of gasoline will also rise in value. The funny thing about this is that the price of oil and the price of gasoline are not positively correlated.
For the uninformed, oil and gasoline both trade separately on various commodity exchanges. So their could (and there has been) times when there is a surplus of oil but a shortage of gasoline in a particular region. This of course, would increase the price of oil, but decrease the price of gasoline in that particular area.
Now the interesting about this all process, at what I think is interesting is that none of the reasons why gasoline prices, other than in times of shortages, are based on rationale evidence. Take for example, the so-called “summer driving season” from May to September when gasoline prices usually spike by early September. This market mentality has become a self-fulfilling prophecy in which even if American driver’s stop driving so much during summer, gas prices will still rise.
And that my friends is the crazyness of the market.
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