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Do Now #21: What’s Up With Gas Prices???

| February 27, 2012 | 0 Comments
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Photo by Eric Steuer/Flickr


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Do Now

You’ve probably noticed that gas prices have jumped in the past few weeks. So how might this alter your mode of transportation? How do you usually get from place to place?

Introduction

Unless you haven’t left your house in, like, the last three weeks, you’ve probably noticed that gas prices are unusually high. As of the end of February, a gallon of regular gas in California – on average – was more than $4.20/gallon. That’s more than almost anywhere else in the country (except Hawaii). But in most states, gas prices have also shot up, which in America is a pretty big deal given how much we drive. So what’s the deal? Why do prices at the pump change so much from week-to-week?

Unfortunately, the answer is anything but simple, and it very much depends on who you ask. Most people agree that it comes down to the fundamental economic theory of supply and demand. But the main factors that are causing that are up for debate. Here are a bunch of popular theories that have been tossed around:

1. Geopolitical issues
This is the idea that most experts at least somewhat agree on. A lot of America’s gasoline supply is made out of crude oil that comes from some pretty politically unstable places. A significant amount, for instance, comes from various parts of the Middle East that are either in the midst of political turmoil (i.e. Libya and Iraq) and are therefore not producing as much, or are simply not that friendly with the United States (i.e. Iran) and can cut oil supplies as a kind of punishment. Iran, for instance, is currently at odds with the United States and Europe over its controversial plans to further develop its nuclear program. Just last week, global oil prices jumped to a nine-month high after Iran announced it was cutting oil shipments to France and Britain. Iran has also threatened to shut down the Strait of Hormuz, a major regional shipping route for oil tankers. Doing so would significantly affect global oil supply.

2. Betting on oil prices
In a speech last week on energy policy, President Obama said that the spike in gas prices has been exacerbated by Wall Street traders who are speculating on future oil prices. “When uncertainty increases, speculative trading on Wall Street can drive up prices even more,” he said. “So there are short-term factors at work here.” Essentially, he’s saying that traders are gambling on supply and demand, and in doing so, influencing the availability of gas for American consumers and driving prices up.

3. Less domestic production
Some also argue that gas prices have shot up because of the number of U.S. refineries (which transform crude oil into the gasoline we pump into our cars) that have recently closed down as a combined result of environmental regulations and profitability issues. Almost 5 percent of U.S. gasoline production capacity has disappeared just in the last three months, one senior energy analyst at investment firm Oppenheimer and Co. recently told NPR.

Resource

KQED’s Forum Skyrocketing Gas Prices – Feb. 22, 2012
Gas prices across the country are shooting up. In Bay Area cities, prices have passed the $4 mark and may keep climbing as investors watch escalating tensions between Iran and Israel. At the same time, there is optimism that the global economy may be improving, driving oil demand up. We discuss all the factors, and what the high prices mean for the economy and your wallet.


To respond to the Do Now, you can comment below or tweet your response. Be sure to begin your tweet with @KQEDedspace and end it with #KQEDDoNow

For more info on how to use Twitter, click here.


More Resources for Follow-up Lessons

NPR segment What’s Behind The Recent Hike In Gas Prices? – Feb. 22, 2012
Oil prices have jumped sharply in the past two weeks, and the price of gasoline is also moving up. Across the country, a gallon of regular costs nearly $3.60 on average, with some areas facing $4 gas. That’s causing sticker shock at the pump, and concern that rising prices could derail the economic recovery.

PBS NewsHour segment As Gas Prices Rise, White House Goes on Offensive, Defensive – Feb. 21, 2012
With President Obama taking heat from the GOP over rising gas prices, White House Press Secretary Jay Carney worked Tuesday to shift blame and tout domestic energy exploration efforts. Judy Woodruff discusses the political implications of $3.58 a gallon with The New York Times’ Michael Shear and John Kilduff of Again Capital.

 

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Category: Do Now, Do Now: Government and Civics

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About the Author ()

Matthew Green runs KQED’s News Education Project, a new online resource for educators and the general public to help explain the news. The project lives at kqed.org/lowdown.