What Is Causing Gas Prices To Go Up?

In California, a gallon of gas has topped $3. But it comes at a time when there's a glut of oil on the market.

Copyright © 2010 NPR. For personal, noncommercial use only. See Terms of Use. For other uses, prior permission required.

LIANE HANSEN, host:

You've no doubt noticed that gas prices are creeping up again. If it was just a matter of supply and demand, that wouldn't be the case because there's a glut of oil on the market.

Here's Marianne Russ of Capitol Public Radio to explain why you're paying more at the pump.

MARIANNE RUSS: It's one thing to grumble about paying more to fill up your car. It's another thing entirely when you have 150 big rigs to refuel every day.

(Soundbite of engine starting up)

RUSS: Scott Blevins heads up Mountains Valley Express freight service in Manteca, about an hour south of Sacramento. He has operations in California, Nevada and Arizona.

Mr. SCOTT BLEVINS (Mountain Valley Express Freight Service): Diesel fuel for our company is roughly our third single largest cost.

RUSS: With most gas and diesel prices around $3 a gallon in California, Blevins spends about $330,000 a month on fuel. Higher prices hurt Blevins, but not in the way you might thing. Like many in the industry, he passes the higher cost onto his customers through a fuel surcharge. That makes it more expensive for them to ship their goods and that means...

Mr. BLEVINS: Ultimately, we consumers pay for it. I mean, if you look at your grocery bill lately, a large part of the cost of your groceries is due to fuel 'cause they all come on a truck.

RUSS: Blevins says business is down because his customers are shipping 15 to 20 percent less than they did a couple of years ago and that's largely because consumers are buying less stuff. So, what's driving the cost of gas up?

Mr. BOB VAN DER VALK (Consultant, 4Refuel): Unfortunately it's not supply and demand.

RUSS: That's Bob van der Valk, a fuel pricing analyst.

Mr. VAN DER VALK: Because supply is up, demand is down and prices should be going down and they did not.

RUSS: Van der Valk is a consultant with 4Refuel, a diesel fuel distributor in Washington state. He says the weak dollar has a lot to do with it.

Mr. VAN DER VALK: If the dollar is weak, crude oil goes up because everybody takes their money out of investing in the almighty dollar or the euro and putting it into, investing it in paper, barrels of crude oil.

RUSS: Van der Valk says that investment has helped pushed oil to around $80 a barrel and that means higher prices at the pump. He says they'll probably keep climbing. In California at least, which has the highest gas prices in the continental U.S., could be at $4 a gallon by the summer.

Esmael Adibi doesn't think prices will get that high. He's an economist at Chapman University in the Los Angeles area. But he is concerned about the effect of higher gas prices on the economic recovery.

Professor ESMAEL ADIBI (Chapman University): When gas prices go higher the way it did - one dollar per gallon over one year - what it means is kind of a tax on us. It's like we have less disposable income to spend.

RUSS: Adibi agrees the weak dollar is playing a role in high gas prices, but he says there are a number of contributing factors, including the cold snap in the eastern part of the country that increased demand for energy. In California, where unemployment is over 12 percent and the state budget has a $20 billion hole in it, Adibi says the gas pump isn't an effective place for consumers to be spending extra money.

Prof. ADIBI: Most of it is going to go to oil-producing countries and that's not going to be any benefit domestically for our economy.

RUSS: But it's important to keep things in perspective, that's according to Christopher Knittel. He's an economics professor at the University of California at Davis. He says, when you consider the things we don't pay for -what he calls the social costs of gasoline - three bucks doesn't sound so bad.

Professor CHRISTOPHER KNITTEL (Economics, University of California at Davis): If we worry about climate change, if we worry about even more local pollution such as smog, if we worry about the fact that our military is larger, the more oil we consume, all of those costs are not in that $3 a gallon. So, from that perspective, $3 a gallon is actually a pretty good deal.

RUSS: Compared to a year and a half ago when gas in California was over $4.50 a gallon, $3 many not sound so bad. But the uncertainty around where prices are headed next makes it pretty tough for business owners like Scott Blevins at Mountain Valley Express Trucking to plan their budgets for the year.

For NPR News, I'm Marianne Russ in Sacramento.

Copyright © 2010 NPR. All rights reserved. No quotes from the materials contained herein may be used in any media without attribution to NPR. This transcript is provided for personal, noncommercial use only, pursuant to our Terms of Use. Any other use requires NPR's prior permission. Visit our permissions page for further information.

NPR transcripts are created on a rush deadline by a contractor for NPR, and accuracy and availability may vary. This text may not be in its final form and may be updated or revised in the future. Please be aware that the authoritative record of NPR's programming is the audio.

Comments

 

Please keep your community civil. All comments must follow the NPR.org Community rules and terms of use, and will be moderated prior to posting. NPR reserves the right to use the comments we receive, in whole or in part, and to use the commenter's name and location, in any medium. See also the Terms of Use, Privacy Policy and Community FAQ.

Support comes from: