Increasing Oil and Gasoline Prices

Over the past few decades, American oil and gas prices continue to rise. It is somewhat higher than the previous year. But I saw some cases where oil and gas prices soared to the American citizens enough to demand that they stop spending or cut spending. It is the first time in history after Hurricane Katrina and Rita in 2005. Then, in July 2008, we saw a record spike of $ 4.50 national average per gallon of gasoline.

Gasoline prices are still high as the global oil demand is growing more rapidly than the oil supply that raised oil prices and gasoline prices. Despite the increase in US production, US consumption is decreasing. What is further offending the world market is sanctions against turmoil in Iran and other oil-producing regions where traders are increasing their risk premium for oil prices. Gasoline supply is small and gasoline prices are rising further due to lack of refining capacity to compensate for equipment failures and regular blackouts. During the past few decades, the factory was closed due to refinery's environmental regulations, the new regulations will raise the cost of refining crude and will be passed on to consumers of petroleum products in the future.

Despite a significant reduction in gasoline prices, the increase and decrease in oil and gasoline prices are closely related. In June 2008, when the oil price rose by 98% compared with the same period last year, the gasoline price just increased by 33%. Likewise, when the oil price fell by 59% in February 2009, gasoline prices fell by just 36%.

The prices of oil and gasoline are indeed very closely related. Figure 3 shows the monthly average oil price from 1990 to the beginning of 2008, using the West Texas Intermediate spot oil price (correct ratio, blue thin line, US dollar per barrel) and US retail gasoline price (left) It shows a figure calculated by the number of gallons per minute, thick red line. Over time, the two series are very close: the rise in oil prices is accompanied by the rise in gasoline prices. As shown in the figure, the correlation coefficient (represented as "r") of the two sequences is 0.98. In addition, monthly fluctuations in oil prices and gasoline prices (not shown) also have a high positive correlation.