Sunday, 20 April 2014
Oil Demand Is Not "Driving" Gas Prices PDF Print E-mail
Written by G   
Friday, 25 April 2008 21:37

How can we know if additional drilling will decrease the price we pay at the pump for gas?  It's a big questions, so I've broken it down to it's core premise, which is that increased demand compared to the short supply of oil is the biggest cause of increased gas prices.

I had two main questions: What is the current supply and demand compared to historical trends?  Has there been a dramatic increase in the demand of gas compared to the supply of oil?
An analyis of data from the Energy Information Administration (the official energy statistics of the U.S. government) reveals the following:
Comparing 2008 data to 2002, Supply/Demand for oil is down by 2.1%.  However, gas prices have increased by 152% since 2002.  Let me state the facts again, the demand for oil goes down and gas prices have skyrocketed.

Finally, we need to determine how much gas prices really depend on oil supply and demand. The correlation analysis shows that from 1994 to 2001, the demand for oil accounted for 56% of the increase in gas price. However, from 2002 to 2008, the demand for oil only accounted for 10% of gas price increases.  Again, demand for oil can be blamed for only 10% of the our current gas prices.

Globally, supply and demand since 2006 has remained steady - no significant increase or decrease.

To summarize, the official U.S. government data shows that:

1) there is no increase in the demand for oil when compared to oil supply
2) the large increase in gas prices has nothing to do with the supply/demand for oil.

Current gas prices are not market driven because there is really no basis for the increase.  More supply of oil will only result in companies being able to sell it at it's current inflated price.  This means more profit for them not cheaper gas for us. 

Don't get me wrong.  I have no problem with additional drilling and companies making large profits; but let's just be honest about why big oil companies and politicians want to do it.

Data Source: Energy Information Administration (the official energy statistics of the U.S. government)
Last Updated on Saturday, 30 August 2008 18:46

CB Login