Supply, Demand, And Speculation Play Roles In High Gas Prices

Gas prices are on the rise throughout the United States.  In Idaho, it costs on average about $3.80 a gallon.  That’s up from $3.00 a gallon at the start of this year.   One reason for this spike has to do with future bets on oil prices.

Over the past couple of years, gas prices have been like a roller coaster.  The ride starts out low and then it rapidly shoots up come spring.  Dave Carlson of AAA Idaho says speculators have driven prices skyward.   "They’re believing that, in the long run, supplies are going to get tight, or more gasoline is going to be used across the world, and that really has the tendency to drive fuel prices higher."

Bets the oil market will go a certain way are on a record pace this spring.  These futures contracts tend to amplify what typically happens with supply and demand.  Once bets reach a critical mass, more investors jump on the ride. That drives prices further in that direction.  Last year, protests in the Middle East caused uncertainty with supply.  This year, it’s Iran and nuclear weapons.   Carlson says,  "The big issue there has been the Strait of Hormuz and what Iran is capable of doing by blocking off distribution of oil out of that part of the world."

Prices in Idaho are lower than the rest of the country because of access to oil from Canada, according to Carlson.  He expects prices to peak in the next month or so.  After that, it’s anybody’s guess. 

Copyright 2012 Boise State Public Radio