A simple rule of economics is the law of supply and demand. When there is too much of a product and not enough need from the consumer, the price goes down. So why are gas prices going up?

http://www.reuters.com/article/GCA-Oil/idUSTRE59R3SL20091028

As I have often written on this blog, the oil market is not a truly free market. It doesn’t follow the law of supply and demand. As the article notes:

“Oil prices have risen in recent weeks as the global economy has shown signs of rebounding….Still, demand for gasoline, diesel and other fuels suffered as businesses and consumers tightened their purse strings, more than halving margins at plants that process crude oil.”

First, I’m not sure the economy is really rebounding. We now have unemployment of 10%. I bet those who are unemployed don’t think the economy has rbounded. Second, with businesses and consumers spending less on gas, why are prices high?

Because the oil market doesn’t respond to market pressures as it should. What can we do about it? We’ll close out our week-long series by discussing that question tomorrow.

This week we’ll be blogging about the rising gas prices. Why are they on the way up?

http://www.pennlive.com/news/patriotnews/index.ssf?/base/news/1256420408258870.xml&coll=1

As the article notes, there really are no reasons why the price at the pump should be high.

“There haven’t been any destructive hurricanes in the Gulf of Mexico shutting down or destroying offshore drilling rigs, as was the case last year at this time. The peak summer driving season ended weeks ago. There’s plenty of crude oil in storage, too. It’s at above-normal levels for this time of year.”

So why are gas prices high? We’ll be talking about that all this week.  Check back on the blog each day to find out more.

This week brings news that the price of oil may start coming down
again soon. According to Bloomberg News:

“Crude oil fell on speculation that last week’s 10 percent advance
will be undone as US inventories climb and fuel consumption
declines.” http://livetrade.com/?p=60405

But how is it that if oil inventories are high that prices got high
in the first place? This makes no sense. Unless you remember the
geopolitics that is involved in the gas market. So much of the market is distorted by factors like the people running OPEC. Every since the 1973 Yom Kippur War, OPEC has used oil as a weapon in its dealings with the West.

So when you look at the price of gas at the pump, remember that
gasoline prices don’t exactly operate like a free market. And that’s
just one more reason why we should look domestically at developing alternative energy.