Gas to Be Under $3 for 1st Time in 4 Years: Why, What It Means and How It Compares to Milk

Gas to Be under $3 for 1st Time in 4 Years: Why, What It Means and How It Compares to Milk

On October 31, 2014, Fox News ran an article from the Associated Press' Jonathan Fahey entitled, "Gas to Be under $3 for 1st Time in 4 Years: Why, What It Means, and How It Compares to Milk" , in which the author discusses the surprise and euphoria surrounding the recent decline in gasoline prices and offers reasons why. Gas prices were last under $3.00 in December of 2010, and once it crossed over that mark, not many believed that we would see the sub $3.00 price per gallon again that we are experiencing in late October and early November 2014 as shown in the chart below. (Gasbuddy.com 2014) With global unrest and specifically the turmoil in the Middle East, oil supplies were surely destined to fall below the seemingly infinitely rising demand. Now that the opposite of this has occurred, people are rejoicing on social media, posting pictures of the low gas prices and talking about the last time they spent less than $30 to fill up their vehicle. (Jonathan Fahey 2014)

The reasoning offered for the unexpected free fall in price is founded in a simple economic concept, falling demand is below the rising supply. Fahey mentions a few input changes such as technology allowing people in the Unites States to drive more fuel efficient vehicles, substitution allowing us to change our driving habits, and more players in the market as Canada and Iraq have also increased oil production. Technology has also made it easier for suppliers to extract energy from the earth through improved processes such as Hydraulic Fracturing, most commonly referred to as Fracking. He sums up his article by indicated that the change in supply and demand are mainly due to market forces. The surprise in all this is that of falling gas prices occurring simultaneously with a growing U.S. economy. With the U.S. being the world's biggest consumer of oil and gasoline, the decline in demand for gasoline is...