Well it could all be a reaction to political crisis in the Middle East, and uncertainty about the unstable in the region. Me upset, I have it when gas move 50 CENT/Gal. All of a sudden.
Not necessarily, Bruce. The main 3 things that cause the majority of gas increases: supply and demand, commodity traders and when the value of the dollar declines. Political unrest can impact it but it's not as common of a reason as most people think.
Like most of the things you buy,
supply and demand affect both gas and oil prices. When demand is greater than supply, prices rise. For example, U.S. shale oil producers increased the oil supply in 2014. Gas prices fell to their lowest levels in five years. But that shale oil boom reversed when low prices put many producers out of business. Additionally, seasonal demand also affects oil and gas prices. You can expect gas prices to rise every spring. That's because oil futures traders know demand for gas rises in the summer as families go on vacation. They start buying oil futures contracts in the spring in anticipation of that price rise.
Commodities traders also cause high gas prices. They buy oil and gasoline at the commodities futures markets. Those markets allow companies to buy contracts of gasoline for future delivery at an agreed-upon price. But most traders have no intention of taking ownership of the gasoline. Instead, they plan to sell the contract for a profit. Since 2008, both gas and oil prices are affected more by the ups and downs in these futures contracts.
The price depends on what buyers think the price of gas or oil will be in the future. When traders think gas or oil prices will be high, they bid them up even higher. In this way, commodities traders create a self-fulfilling prophecy. This leads to an asset bubble. Unfortunately, the one who pays for this bubble is you and I.
Gas and oil prices also rise when the
value of the dollar declines. That's because oil contracts are all denominated in dollars. That's why oil prices rose between 2002 and 2014. The dollar lost 40% of its value during that time. Oil prices fell in 2015 and 2016. That's because a strong dollar allowed OPEC members to make more money while keeping supply constant. The Energy Information Administration forecasts that oil prices will remain in the same range through March 2018. That means gas prices won't go much higher. But some commodities traders think the price could go as high as $68 a barrel but it's unlikely. Shale oil producers will start coming back online at current prices.
