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Monday, June 9, 2008

Why are Gas Prices Rising?

Why are Gas Prices Rising?

Gasoline prices are rising. In California, it has hit a record high of $4.42 per gallon. Contrast this to a decade ago when gas prices were below $1 per gallon. In fact, since 2004, the hike has not ceased and there are real fears that it will edge closer to $5 soon.

Economists have since correlated the gas prices directly to the oil prices. For each $1 increase per barrel of oil, you will see a corresponding 2.5 cents increase in gas price per gallon.

Just around this time in June 2008, the prices of oil per barrel has risen to $139 per barrel, and if the predictions of economists are right, it could hit $150 per barrel, an increase of $11! That translates to more than 27 cents increase per gallon of gasoline.

The short-term events like hurricanes, refinery fires and so on have had their knee-jerk impact on the prices. However, it seems now that the long term economic impacts are at work, so it looks like gas prices have not seen the highest in history.

“It’s very unlikely, at least in the next decade or so, to have prices sharply lower than what we are seeing now”, quoted J. Sweeney, a Stanford professor and director of the Precourt Institute for Energy Efficiency.

One major reason why gas prices are rising is the growing world demand for fuel. USA, China and India are primary drivers for the global demand.

Even the smaller nations are also boosting their demand for fuel as their economies begin to transform and morph. Worldwide industrialization is pushing the pace for oil consumption.

In a short note, the world demand is quickly outstripping the supply. So that explains why gas prices are rising faster than ever before.

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