| Lynne Kiesling on "The Rise in Gas Prices" |
Gas prices are rising and are expected to reach near-record levels in
the coming months. Lynne Kiesling, senior lecturer of economics at Northwestern
University, says there are a number of reasons why gas prices have increased
recently.
Kiesling: It’s interaction of three factors that
happen like clockwork. In spring, we anticipate that the demand for gasoline
will go up with
the
late spring and summer. In terms of supply, OPEC is trying to manage
the world price of crude oil and they have done a pretty good job in
the
past year of controlling supply. And we
see the price increases in March because of the federal EPA fuel oxygenate
requirements.
According to Kiesling, political turmoil in Venezuela has affected gas
prices as well.
Kiesling: There was some political turmoil last year
in Venezuela, that happened earlier. This year it’s happening later
and disrupting the supplies of oil, especially into the Midwest. In the
Midwest we get
a lot of our
crude oil from Venezuela, and so that’s going to have an effect.
Kiesling says current gas prices haven’t reached historical
highs.
Kiesling: It’s also important to remember that in the grand scheme of things
and in a historical sense, our current gasoline prices in 2004 are not
that high. The highest historic price recently in the U.S. for gasoline
was in 1981 when the inflation adjusted equivalent to today, the price
then would have been $2.80. So we are not even close to the historic
high price of gasoline in real terms. It just looks high in nominal dollars.
But once you take account of inflation, gasoline prices aren’t
that high.
Kiesling says there are reasons some states have higher gas prices than
others.
Kiesling: Different states have different access to crude oil, states have different
patterns of economic activity that lead to different demands, but most
importantly, states have different regulatory approaches. Other states
that have different air quality regulations have different fuel formulations
that may be cheaper to achieve, and so they can have lower gas prices.
And the final thing that can make gas prices differ across states is
different taxes.
Kiesling believes rising gas prices could motivate people to consider
their own consumption.
Kiesling: I have seen several news articles talking
about people are going to shop for new cars and are looking at hybrid
vehicles. A lot of times when you talk to economists about the
demand for gasoline, one feature that we’ll all say is that demand
for gasoline is inelastic. But as prices continue to go up and as they
stay at higher levels, then that continues to be a large part of our
budget and it may well lead to our decisions about what kind of cars
we buy, whether we take public transportation.
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