Why are Gas Prices Rising?

Have you noticed lately that gas prices are moving from costly to just plain aggravating?! Often during the summer travel months a gas price increase is common, as oil companies are looking to take advantage on an increase in fuel needs; however, it’s December not July! So what gives? Why are gas prices rising?

The US Market is Improving

Oil, among many other commodities, rises and falls in value as the economy moves. The graph below shows the Dow Jones Industrial from January 1, 2010 until now, December 29, 2010.

Notice how similar the rises and falls are to the retail gas price graph shown at the beginning of the article. See some trends? We do too… and it makes some sense, right? When an economy is expanding, energy is a real cost of that expansion. People are driving to and from work; goods are being transported from one factory to another; planes, buses, trains, and other vehicles are needed more, etc…

The World Markets are Expanding

Why are gas prices rising? Certainly it’s not just because the United States is seeing economic growth. China, India, Brazil, and other developing countries are seeing true economic expansion. And as made clear above, growth of this kind requires energy! And the United States is certainly not the only country in need of oil!

Below is a graph of IBOVESPA, the Brazilian equivalent of the Dow Jones Industrial, over the past 5 years:

As you can see, over the past 5 years Brazil has seen true expansion in its economy. Again, as a result, energy is needed! Why does a Brazilian oil need impact the United States? Remember, much of the world supply comes from the same place, the OPEC countries. Learn more about these countries and their impact on fuel prices in a previous article I wrote this month entitled “Why Are Gas Prices Going Up Again?”

—————————-

I understand this is not totally comprehensive. Yes, there are other factors in play here–political, potentially, that we are not considering. However, suffice it to say, domestic and world economic improvement causes an increased need for fuel. And as demand increases, prices rise–economics 101.

I am, however, not naive enough to think that these are the only factors.

Why are gas prices rising? What do you think? Comment below.

Read more at Financial Nut