Tuesday, December 23, 2014

Why Gas Prices are Falling in the USA

From coast to coast, the cost of gasoline is tumbling.

For the first time in years, I can fill a tank of gas with a $20 instead of having to get by with half a tank, or none at all.

Why the drop in price?

First, an oil boom is bubbling up in the Gulf Coast.

Second, shale exploration in Canada is yielding more hydrocarbon for fueling.

Third, the demand for oil is decreasing in other countries, particularly Asia and Europe, where a slowing economy is forcing people to budget differently.

However, I have spoken with a number of people, and they are convinced that the oil companies are in cahoots, colluding together to force the prices.

One gentleman, a successful businessman himself, really believes that the companies had arbitrarily pushed the gas prices high so that they could then ease the cost at the last minute so that they could still charge more, yet claim: "We are not asking you to pay as much as you had before!"


The fact is, businesses which are interested in long-term profit (and profit margins) are not interested in faking or forcing prices to some arbitrarily high level. Price levels  rise and fall in response to supply and demand.

Businesses which try to force prices arbitrarily will end up pricing individuals out of the market altogether. If businesses want to turn a profit, they have to offer the best price which individual consumers are willing to pay. If the price is forced down to an arbitrarily low cost, then rationing ensues, since demand will outstrip supply every time.

Businesses do not exist to provide a cheap commodity. They do not exist to give people a job.

Businesses exist to turn a profit, to maintain a profit margin: to make money.

Gas prices are falling now because there is more supply, and the demand is still present. How else to take advantage of the supply but to the lower the price, ensure more purchases, and then increase the profit?

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