Why gas prices rise at a time of increased domestic supply

The price of gas has become a huge campaign issue between Democrats and Republicans. Yet as the politicians argue and point fingers, the reality is this is a case where we the people have power and we’re actually doing something about it.

Our domestic oil producers are using new methods of exploration to dramatically increase the amount of oil they’re pulling out of the ground. But the truth is, we are no longer in control of the price of oil and refined gasoline.

The oil market is a worldwide one. China, India and the rest of the Third World are developing at a rapid pace. You have people going from foot to scooters in the poorest nations, while car registrations are exploding in those Third World countries that have a bit more money. It’s like there’s a motorized revolution taking place outside the First World.

Back at home, GM just reported record sales of vehicles that get 30+ mpg on the highway. At the same time, people are buying cars as a bigger historical percent of purchases vs. gas-guzzling trucks and SUVs. And even trucks and SUVs are today made more fuel-efficient than they used to be!

So our demand for gasoline is down 7% in the United States from a year ago. And yet the price of gas marches higher because we as a nation no longer control demand.

Our oil producers, who are doing a great job with new exploration as I mentioned, send what they’re extracting and refining overseas. Economics dictates that for overall economic health and our nation’s competitive standing, the best use of that oil and refined gasoline is to go wherever the customer is willing to pay the most for it.

That’s why economics is called the dismal science!

Yet the good news for us is this: We’re less than 4% of the world’s population here in America. We used to use 25% of the world’s oil and gas. Now we’re much closer to using 20% and dropping. We are becoming more efficient, meaning the cost of gas over time will be less important to us as individual consumers and less important as a country.

We don’t control our destiny on price, but we have a lot to say on the supply side, and with domestic demand when we buy and drive fuel-efficient vehicles.