As a recovering financial guy I am both bemused and chagrined on nearly a daily basis by the abundance of delusional and wrong-headed economic thinking (much of it magically wishful) that seems to fill every corner of social media as it relates to the subject of rising gasoline prices.
It is apparent
to me that confirmation bias has replaced Economics 101 as vast
numbers of disaffected people pine for the return of the low oil prices of a year ago. Perhaps they have forgotten this so I want to be absolutely clear - the price of crude oil and gasoline tanked a year ago as
the impact of the pandemic laid waste to the global economy AND
PEOPLE STOPPED TRAVELING. The truth of the matter is that demand fell off of a cliff.
Fast forward to today - a recovering economy is heralded with a rise of gasoline prices.
The price of crude drives two-thirds of the cost of a gallon of gasoline. The balance is refining, distribution, taxes, marketing and demand.
On the demand side of the equation the increasing strong demand for gasoline (and other petroleum-based products) places pressure on the supply. Basic economics dictates that as demand increases and supply remains static the higher demand leads to a higher equilibrium price. And vice versa.
Click on the image for a closer look at the graph
As individual consumers, higher prices at the pump means that some of us will have less money in our household budgets to spend on other goods and services. As a consequence higher gasoline prices have an effect on the overall economy. Nevertheless, high gas prices are a principal sign of a strong economy. If you remember nothing else – remember that.
If you want to forget something you can dispel the notion that Presidents Trump and Biden determine gasoline prices.
That is not only lazy thinking - it is silly.
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