These days, filling up the gas tank is almost enjoyable as consumers pour less money into their vehicles every week in gasoline.
Gas prices haven’t gotten this low since April 2009. Many still remember a few short years ago when prices at the pump soared above $4, and in some places $5, a gallon.
Now, regular gasoline sits around $2 a gallon. It’s a huge drop in price, and many are asking why.
While the Onion satire news site tackled this topic last week, real answers can be found at Vox.com. Here’s an overview:
Nearly anyone can tell you the mechanics of price are spurred by supply and demand. When something is rare, meaning low in supply, it is worth more. Likewise, when more people want something, the price for that item naturally rises.
Gasoline is no different. There are a few things behind the falling prices of oil that translate to $2 a gallon at the pump.
First, the supply of oil worldwide has increased, particularly from the United States. Back in the days of high gas prices, local oil companies started drilling in North Dakota and Alberta to fulfill the demand, which increased supplies domestically.
Since the amount of oil pumped overseas did not change, this increased the global supply of oil.
Secondly, first world players, including the U.S. and many European countries, no longer demand as much oil to fulfill their needs these days. Many cite the rising popularity of hybrid cars and other green energy sources to explain this.
Ultimately, the market was flooded with oil, while at the same time fewer people were buying. That meant companies started storing oil instead of selling out their stock. Then, last September those stores started getting a little too full, and a price drop was imminent.
This was good for heavy consumers like the United States, but countries that rely on oil sales, like Russia and Venezuela, are hurting due to falling prices.
It’s hard to say if gas prices will stay this low for long. Conflict in places that produce oil could drive prices up again. Gas prices also go up naturally during the summer months, when local demand increases.
Ultimately, economic forces are complex and hard to predict. It’s best to take advantage of low prices while we can.