Gas Prices Make Summer More Expensive

On the calendar, June 21 2014 was the first day of summer in the United States.   However there are many different unofficial starts to the normal vacation season in the country.    Some classify Memorial Day as the unofficial beginning of the season, while others look to July 4th as the beginning of their summer.    Usually, schools end during the month of June, and that marks the beginning of the summer holiday for children, so for many families it is recognized as the start of summer.   Whatever your feelings, it is during summer when we look to take our hard earned vacations, traveling somewhere with our friends and families to decompress from all the stress and anxiety in our daily lives.  Some of us wait for a full year to enjoy our brief vacation periods during the summer.   This year, as we approach a holiday weekend, gas prices are on the rise, making any travel plans more costly than we may have originally budgeted.

Normally, during a typical year, there is increased travel on Memorial Day.  Because of this, there is a corresponding increase in demand for gas and fuel.  As the fuel is being converted from winter to summer mixtures, it creates limited supply.  The higher demand and limited supply, plus corporations wanting to take advantage of more people traveling on a holiday weekend, lead to higher gas prices on Memorial Day.    Usually, when the conversion is complete and supply and demand return to normal, gas prices are stabilized, slightly higher than earlier in the year, by the middle of June.  As consumers, we expect an increase at the pumps on the next well traveled holiday, July 4th, especially when it falls around a weekend.    This year there has been no dip in the price of gas during the month of June, which makes for a higher price at the pump for our holiday weekend.

During the spring months, analysts predicted that gas prices would fall in June, thus offsetting any predictable increase on the holiday weekend.  That has not occurred.   The unrest and turmoil which has gripped Iraq has had a huge effect on the cost of oil throughout the world.   In reality, there has been no discernible reduction in the production of crude oil in Iraq.  In addition, the United States is at almost record high levels of production of oil.  These factors combined should be causing the price of oil, thus the price of gas, to be lowered.  The opposite is happening.   There are fears throughout the financial markets that the conflict in the Middle East will continue to grow and spread.  This has caused an increase in the speculation of the price of oil, driving the cost of a barrel higher, which has lead to higher prices at the pump.


The unfortunate reality for the United States consumer is that they must pay more for a gallon of gas because the cost of oil has increased.   With current production levels keeping supply at adequate levels the price should be stabilized, and in fact lower than the previous years.  However, there are fears that a widening conflict in the Middle East will eventually cause a cease in production or at the very least a reduction in available supply.  Because of this, those in the market are driving up the cost of a barrel of oil.  According to experts, the uncertainty in Iraq is keeping oil about $4 a barrel higher than normal. This means gas is higher than normal.  During this week, a gallon of gas averaged $3.68 across the country.  This is around 14 cents higher than at the same time last year.  With over 200 million American drivers using gas on a daily basis, this is a serious impact to the consumer’s pocket.

Of course, blame is always given to someone else when these situations arise.  Those in the market blame the conflict in the Middle East and the possibility that there will be a collapse of the government in Iraq, leading to loss of control over the second largest producer of oil in OPEC.  Those involved in oil production blame speculators in the financial markets for driving up the cost saying they are being irresponsible, claiming there is no shortage of oil for consumers.  In addition, analysts say it is highly unlikely that the insurgents in Iraq will ever threaten oil production in the country.   The main oil fields are protected by a wide array of security forces and would be extremely difficult for the rebels to penetrate and control.    Of course, there is no word from the big oil companies about production in the Middle East.   All of this speculation and higher gas prices result in an economic boom for the companies.

While the price of a gallon of gas is not quite at the record highs of 2008, the global economy is also not in the throes of a recession as it was during that year.   All of the posturing by corporations, oil producers, and financial analysts means little to the average American consumer.  There is uncertainty in Iraq, there is uncertainty in oil production, and there is uncertainty in the financial markets.   The only certainty is that Americans will be paying more money for a gallon of gas this summer.


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