WILL CHEAP GAS SPARK RETURN TO WASTEFUL WAYS?
November 21, 2008 11:00 pm

SCOTT GRAVES

Cheap gasoline is back!

Five months ago, when gas prices in Brookings hit a high of $4.39 for a gallon of regular unleaded, I told people it would be a long time, if ever, when prices would fall below the $4 mark.

Boy, was I wrong.

On Friday, the average price for a gallon of regular unleaded gas in Brookings was $2.15! I hear it's less than $2 in other parts of the country.

The timing of the plummeting gas prices closely matches that of our plummeting economy. Which proves something I've been telling people about gas prices for years: It's all about what the market – here and abroad – will bear.

Motorists get up in arms whenever gas prices spike, or the prices are higher on the coast than elsewhere. They use words like "gouging" and "highway robbery" and demand their government representatives investigate the situations (which some have done, but never amounts to anything).

Until recently, most of the people complaining about the high gas prices didn't change their driving habits or spend less on gas. And so the prices kept going up.

When the economy tanked, however, people changed their spending habits. They consolidated their trips and drove less, reducing the need for gas. The demand went down. The supply increased. The prices dropped. It's basic Economics 101.

Of course oil companies want to maximize profits, but they can't do so by merely raising the price of gasoline. The market does that and, if prices go up, the companies earn more money. Another example? How about gold?

People seem to understand that when the price of gold rises, gold mining companies make more money. And there doesn't seem to be a widespread misconception that the reason they are making more money is that they just decided to raise the price of gold. People understand that they can't do this. It is the same with oil companies and the price of gasoline

In researching this topic I found several factors that consistently impact the rise and fall of gas prices:

• the price of crude oil,

• the seasonal rise and fall of demand,

• utilization, or lack thereof, of American refineries,

• the availability of gasoline imports combined with the rising or falling value of the U.S. dollar.

It's not simply a matter of "profiteering." If that were the case, the oil industry would not be cyclical – the price would just keep going up and rarely, if ever, decline.

The current decline of fuel prices has me wondering:

• will food prices follow suit?

• will people revert to their fuel-wasting ways?

• will sales of SUVs increase?

• will interest in drilling in Alaska and off America's coastlines decline?

• will consumers' and automakers' interest in more fuel-efficient vehicles wane?

It's that last one that concerns me the most. The silver lining in this summer's high gas prices is that it got the general public thinking about alternative energy. I would hate see that interest decline.

Yes, cheap gasoline is back, but it's only a matter of time before gas prices hit $4 again.