Friday, August 1, 2008

Supply & Demand Fiction for Gas Prices

While America's elected officials play out a theater of the absurd on energy, data pokes a hole in their foundational argument, that gas prices vary based on demand. They go up when the price of crude oil increases, but don't tick down much, if at all, when that input becomes cheaper.

What happened to demand the last 12 months? The Transportation Department noted Americans drove less than any period since 2004-2005. But the graph above shows a long term price increase, huh?

More instructive is April, when drivers cut back mileage by 1.8%, and May with its greater 3.7% decline. Demand fell significantly as Americans parked their vehicles. So prices fell right? Nope, they accelerated upward. At a time driving volume dropped some 5%, prices roared nearly 20% (as shown in the red circle on the graph above.)

Consumers adjusted demand downward and were met with racing price increases. it 's a great setup for Republican enticement of "Drill Now, Pay Less." But those who experienced "Drive Less, Pay More" should show their displeasure. A pox on political theater and corporate Congressional stooges.