Soaring gas prices


Gas prices rose 20 cents in the Twin Cities area on Tuesday, a day after dropping 6 cents. The top price in these parts is $2.59 a gallon, a 31-percent jump from a month ago, and well ahead of the nationwide 19-percent increase.

The price of a barrel of oil has jumped almost 79% so far this year. It comes as analysts say the demand for gasoline is still dropping.

What’s going on?

According to a report from McClatchy, big investment houses are bidding up the price, in anticipation of the economy turning around.

Big Wall Street banks such as Goldman Sachs Group Inc., Morgan Stanley, and others are able to sidestep the regulations that limit investments in commodities such as oil, and they are investing on behalf of pension funds, endowments, hedge funds, and other big institutional investors, in part as a hedge against inflation.

A year ago, Minnesota — what with its blend of ethanol and all — had the lowest prices in the nation. This year, however, the Upper Midwest is among the higher-priced regions.

Jim Ritterbusch of Ritterbusch and Associates said gasoline prices could be back down to nearly $2 a gallon by the end of summer.

(Photo: Tom Weber)

  • I can find no good reason why prices are higher here, Bob.

    Because petroleum in a fungible commodity, it is hard to understand how many factors play into the local retail costs of gasoline, but certainly the rising value of the US dollar is one factor.

    Personally, I’m concerned about the rising percent of our gasoline is coming from synthetic crude from the Alberta Oil Sands. The water use and energy involved to strip mine, wash in boiling water (!) and then process the asphalt-like tar into something that can pass as crude oil and be shipped via pipeline to our two refineries could give our gasoline and even higher lifecycle GHG score.

    Those who worry about the water and land use of ethanol in MN should visit Alberta and see what their gasoline is increasingly being made from. There are miles of Canada that now look like the surface of the moon. Recently I heard the locals call it “Mordor.”

  • Bob Collins

    It could be last year that was the fluke. The refineries in Texas were shut down because of the hurricane (Ike) and there were shortages all across the south and southeast.

  • tiredboomer

    I don’t recall the details to a story I read/heard a few years ago. As I recall, metropolitan markets where Marathon and/or Super America compete are subject to large price swings. Markets without these companies have much smoother price changes. It has to do with their “marketing strategy”.

    This may or may not have anything to do with the recent price swing.

  • Paul

    When are people going to just accept the fact that gas is not a public service. There is no “explanation” for gas prices. The only “market” principle that applies is you charge as much as you can. Why? Believe it or not, the oil companies, gas companies, refiners, speculators, etc. are in it for the money. Supply and demand is by and large a market myth.

  • bsimon

    “Supply and demand is by and large a market myth.”

    Color me skeptical. Your statement would be more accurate to say that consumer demand is not the only factor in gasoline prices. There are also supply & demand influences earlier in the process, as reported by Bob C, who wrote “[a]ccording to a report from McClatchy, big investment houses are bidding up the price.”

    Suppliers (i.e. gas stations) are raising prices because their costs of gone up. Consumers are buying less, perhaps due to rising prices, perhaps due to their own money supply shrinking.

  • Paul

    //Color me skeptical. Your statement would be more accurate to say that consumer demand is not the only factor in gasoline prices.

    I stand by my statement that supply and demand is largely a market myth. It’s simply over simplistic and doesn’t really function in most complex markets. You can only see S&D work clearly in short simple, temporary markets like Hannah Montana ticket sales. There’s no way your going to explain something as complex and manipulated as energy prices with S&D. Health care for instance is a perfect example, there is simply no S&D equation that explains why health care costs increase by double digits every year.

  • tiredboomer

    //There is no “explanation” for gas prices.//

    // I stand by my statement that supply and demand is largely a market myth. It’s simply over simplistic … //

    There’s always an explanation. Just because something is complex doesn’t mean the explanation isn’t simple. Supply and demand IS simple, but elegant. Long term everything comes back to the fundamentals and deviations such as a marketing strategy by SuperAmerica (a subsidiary of Marathon Ashland Oil) are just anomalies which add complexity.

    Other examples of pricing “anomalies”: housing prices artificially influenced by poor banking practices, electricity prices in California artificially driven up by market manipulation, and the granddaddy, tulip bulb mania (the madness of crowds) in Holland in 1637. There are thousands of examples of anomalies … but supply and demand is always the fundamental in the equation.

    (tuilip bulb mainia:

  • Paul


    You are correct, there is of course an explanation for everything. You will note however that I placed quotes around the word thus denoting that I’m wasn’t talking about the concept of explanations in general but rather the specific failure in this case to find an “explanation” for gas prices.

    Supply and demand is indeed an elegant idea, that’s why it’s so popular. The problem is from Nike tennis shoes to cable tv prices it lacks explanatory power. All I can say all those who are trying to defend S&D is why can’t you explain gas prices?

    Tiredboomer does a good job cataloging “anomalies” that defy S&D analysis. The thing is, when the anomalies outnumber the standards they’re not anomalies.

    What people forget about economies is the fact that they are human creations, not natural phenomena. They refer to the “law” of supply and demand as if it’s some product of nature. The core principle of capitalism is profit, not supply and demand. Actors in a capitalist system strive to make as much profit as they can, look there and you’ll find your explanation for gas prices. The problem with S&D is that it so routinely manipulated in service of profit that actual supply and demand are irrelevant. Are generic medications cheaper than brand name meds because there’s a larger supply of generics and fewer people bying them? Of course not. Are Cadillac’s more expensive than Saturn’s because there’s more demand for Cadillac’s? No. I could go on.

    Yes, once and while you can point to specific limited markets and commodities where prices are determined by S&D, but by and large the concept lacks explanatory power in most situations.

    People keep referring to it because it a simple and elegant idea, and for the most part it’s all they remember or ever knew about economics. But then they can’t figure out why gas prices are going up.