CALIFORNIA BUSINESS MINUTE
Gas Price Rise
01-12-10
Hi, I am Tim Johnson and welcome to the California Business Minute.
Oil prices have reached $80 a barrel translating the average national price of a
gallon of regular gas to $2.70 according to AAA during the holidays. The price of
gasoline is up 67 percent from this time last year and at its highest level since
October 2008, a fact not lost on Californians.
So, why are prices rising even as demand for gasoline is falling? Current demand
is well below levels seen in recent years. Oil refiners are actually trimming
production. The crudest explanation, so to speak, is that the price of gas is
following oil upward. Oil has been rising, pushed by increasing global demand
and a weak U.S. dollar.
The global economy has been improving for the last six months and more activity
means more demand for oil, driving up prices. Another factor may be that the
prospects for growth are attracting speculators who are bidding up oil prices.
At the same time, the Federal Reserve printed billions of new dollars in its
efforts to combat the financial crisis, devaluing each dollar in circulation,
which may be contributing to the run up in commodity prices. Even though gas
is still well off its high of more than $4 per gallon from mid-July 2008, for
California, the refinement of a special blend gasoline for environmental purposes
creates a separate supply and demand problem that increases the price of oil in
the state.
In a recent article by equity strategist, Peter Boockvar of the firm, Millar Tabak,
every 10-cent hike in gas prices equates to an additional $14 billion per year out
of consumers' pockets. Americans are spending $1 billion per day on gas. Thus,
rising gasoline prices make a real impact on the U.S. economy, especially one
that's struggling to recover after a nearly two-year recession.
I am Tim Johnson and this has been the California Business Minute.
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