Posted in: Gas Prices,
by Patrick DeHaan on Nov 29, 2011 12:02 PM
You waited hours in line Friday morning for that great deal on a new television. Maybe not you, maybe someone you know. Odds are between now and Christmas you'll be buying things. What I'm here to say is that our shopping habits could bring an increase to gasoline prices- and we're doing it to ourselves.
Here's the problem. How much we spend is a great bellwether for how the economy is faring. Spending a lot? Odds are other people are too, or at least spending more. Holding your pennies back? Odds are many other people are too. Both can have a vastly different impact in what prices we see at the gasoline pump.
Let's take the example of more shopping and explain how that can drive up gasoline prices. You (and many Americans) buy more this holiday. We've already seen Black Friday sales hit records, and odds are that Cyber Monday will also be a huge success. That means that people have money to spend, and likely have jobs to pay for the spending. To get to their jobs, they likely drive, meaning more people have work, more gasoline demand. Also, the more you shop, the more trucks deliver goods to replenish what you bought. More diesel demand. The more you buy, the more factories are churning out. More plastics, AKA oil used. More work at the factory means more shifts, meaning more people on the road. You see what I'm getting at? Demand for gasoline rises as the economy improves. That leads to upward pressure on gasoline prices. As goes the economy, as go gasoline prices.
The similar holds true in an economic downturn. Look at 2008! Wall Street banks started to collapse- people started losing their jobs. The were laid off. People slowed their spending. People drove less, spent less, took fewer vacations. They stayed closer to home for Thanksgiving that year. All that lower activity means less gasoline demand. What happens when gasoline demand drops? Prices drop.
Keep in mind in both examples also have far reaching affects! The U.S. economy is a bellwether for other economies. We don't do well? Neither does China. Neither does Japan, and so on. They use less, global demand falls. Prices fall.
On the flip side, if our economy improves, so other countries see similar improvements- China adds factories, adds positions, increases shifts! Japan ships us more, we use more oil all along. Prices rise around the world because of the increased demand!
The United States and Canada lead the way in oil/gasoline demand, and we have a major impact on other countries and their economies. What seems small- that shopping bag- is duplicated over and over, and that in turn is just one mechanism that fuels gasoline prices.