Rising Gas Prices and Declining Sales: When Economics No Long Makes Sense

By Jacob Brown | February 21, 2012
If you've ever taken an economics course, chances are you've seen the chart with an upward sloping line signified as the supply curve and a downward sloping line as the demand curve. They usually meet somewhere in the middle. That's the point where customers fork over their cash for a product and everyone's happy. We imagine the people charting gas prices on a supply curve look something like this right now:
Because, for most of us, there's no easy way to explain why gas prices are doing what they're doing, up almost 40 cents per gallon from where they were last year to $3.57. Regionally, the difference is even more stark: Los Angeles prices are a good 50 cents higher than that right now. It's only expected to get worse, too, with more driving in the warmer spring and summer months. So what else could be a factor? Switching from economics to politics, Iran put sanctions on two of its biggest importers, the U.K. and France, to stop the sale of oil. It forces them to have to find new suppliers, which encroaches on the rest of the world's supply. Speculators have dumped their dollars into buying on the risk Iran completely shuts off its supplies, which in turn has driven the price up. But that shouldn't play as big of a role in the U.S. as it has. Another reason for the soaring gas prices well before travel season may have to do with the Northeast's supply, or lack thereof. Outside Philadelphia, Sunoco idled its Marcus Hook refinery. ConocoPhillips did the same thing in nearby Trainer. The two refineries once produced up to 20 percent of the gas and diesel for the Northeast, but neither has pushed out a single barrel since at least December. That has forced suppliers to get their fix from Gulf Coast pipelines. On a local scale, laying off 102 Sunoco workers last week has killed demand for fuel, as well as the local supply. Yet fuel prices keep moving upward. Oil prices, which were once regionally controlled, seem to be linked more into the international playing field than ever. And no one can clearly explain why. Sources: Philly.com, AAAfutureatlas.com (Lead photo)