Mar 5, 2013

A Quick History of War, OPEC, and Gas Prices

We’ve all felt the pain at the gas pump as gas prices seem to rise overnight. What causes these dramatic shifts in the cost of gasoline? Prof. Art Carden explains that gas prices fluctuate based on supply and demand for oil. For example, international conflicts like the Iranian Revolution in 1979 and the political unrest in the Middle East in the past few years can lead to decreased supply, causing prices to increase. By contrast, innovation, new technologies, and new producers of oil can increase supply and lead to lower prices. Demand can change, too: the growing economies of China and India are contributing to increased global demand for oil, which brings prices up. The East Asian crises at the end of the 20th century led to lower demand for oil, and prices fell. Prof. Carden says that we don’t need to worry about running out of oil, though. Prices, profits, and losses in relation to oil provide incentives for innovation and improvements.

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