Why The Drop In Gas?

Dave goes deep here. He explains to Winter the reason for the wild ride on gas prices.

QUESTION: Winter asks Dave why gas prices have dropped so dramatically, especially since the presidential election. What does Dave think about it, and where does he think gas will go from here?

ANSWER: Any time there’s a shortage of something, the price goes up. That’s called supply and demand. If there is a lot of availability and no demand, the price goes down. That’s what’s going on with houses and cars; there are a lot for sale right now and not many buyers, so prices are down right now.

With oil, there became a shortage of it, and a perceived future shortage of it. People thought there would be less and less because we consume more each year, and because countries like China and third world countries are growing and consuming more oil. That’s what drove the prices up. Also, when the economy is good, we burn more fuel. The perception was that with China and the U.S. booming, and several third world countries coming on strong, there would be less fuel and the prices started shooting up.

Add to that OPEC, which is the organization of countries in the Middle East that control the spicket. They pretty much make sure there’s a shortage of oil at all times. There’s enough oil coming through to keep them in business and keep everyone from screaming, but there’s not enough coming through to keep prices down. They got production down, and demand then went up, and all of a sudden we have gas that’s $5 a gallon. That caused people to slow down their buying, and that slowed down our economy and the global economy. That means we consume less gas, so there’s less of a demand, so there’s all this gas sitting there and the price goes down.