Why are gasoline prices high?
Price is a function of supply and demand. During 2004, thanks partly to U.S.-led global economic growth, world petroleum demand grew by 3.2 percent[10] more than twice as fast as most experts predicted.[11] Demand remained strong through most of 2005. That is the main reason crude oil prices rose to over $60 a barrel in June. Then in September and October, hurricanes Katrina and Rita shut down about one-third of U.S. domestic oil and gas production and one-quarter of U.S. refining capacity. The hurricanes also partly closed the network of pipelines that distributes Gulf Coast oil and gas to the Midwest and Northeast. The recent record-high gasoline prices were chiefly a consequence of surging global demand combined with severe hurricane-induced supply disruptions in the United States. Gasoline prices have fallen to pre-Katrina levels as energy companies have brought production, refining, and pipeline operations back on line exactly what textbook economics tells us to expect. Prices sho
