If we have a lot of crude oil supply, why are gasoline prices so high at the pump? In an article titled ‘Abundant crude supply doesn’t push gas prices down,’ the San Francisco Chronicle’s Eric Nalder goes from Alaska to Oklahoma to walk us through the tortured logic of the wonder that still exists in response to this elementary question.
Crude oil price fluctuations have little effect on short term gasoline prices. Know what has much greater effect? As an economy, America will buy a lot of gas, regardless of price. Our society is structured to virtually guarantee it. Economists call it inelastic demand.
For most normal goods and services, as prices rise, the amount of the good or service will fall. We tend to buy less of relatively expensive stuff. Gasoline, on the other hand, behaves more like goods people are addicted to, like…
Yeah, like cigarettes. Or…
That’s right, illegal drugs. We’re addicted to fossil fuels and no matter the price, we’ll use them, and a lot of them too.
So, let’s get it straight. As long as America, and other industrialized economies, are hooked on oil, prices will go wherever they can, no matter the price of crude, no matter the military or political condition in the Middle East, no matter who’s in the White House.
Got it now?