The United States is producing almost 7 million barrels of oil a day, more than it has in a decade and a half. We also now export refined gasoline, something we’ve never done before in our history. Finally, our autos are getting more efficient almost every year.
So, supply is up in both crude and finished products and demand is down, reflected by our ability to export and a drop in our total miles driven. The laws of economics would say that prices should be low. So why are we seeing high gas prices at the pumps right now?
Indeed, this is a yearly phenomenon: Gas prices tend to spike and wane, but those fluctuations are almost never related to the simple supply and demand fundamentals here in the US, they are instead moved by global and financial inputs:
The volatility for gas prices based upon global inputs is in direct contrast to the volatility of natural gas and power markets that are driven by very localized inputs.
In natural gas, you have deep supply created by new hydraulic fracturing technologies in shale which has removed much of the short-term weather related volatility that was the norm for natural gas during the first decade of this century:
For natural gas, local fundamentals work to establish price – more supply equals a lower price. This is importantly related to the transport costs for natural gas: If natural gas were as easily exported as refined gasoline – you’d again…