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The Rising Price of Gas Explained
A gallon of gas in California is averaging $3.63, 35-cents more than the regular joe American, and yesterday, a barrel of oil topped $111 (this time last year, it was $57). But as the San Francisco Chronicle explains, this isn't about supply and demand. Rather, it's the dollar and they break it down:
Oil is traded in dollars. A weak dollar means that foreign investors can buy more oil, which helps drive up the price. And huge institutional investors start buying oil as a safe place to put their money, safer than the dollar or the stock market. "Oil is the new gold," said James Burkhard, director of global oil market analysis at the Cambridge Energy Research Associates consulting firm. "Oil has some intrinsic value, and that value remains even if the dollar depreciates."
For weeks now, oil industry analysts have watched in amazement as oil's price kept climbing, even though government statistics showed that the country had ample supplies of oil and gasoline on hand. Gloomy news about the economy should have pulled oil down, because demand for petroleum usually slumps in a recession. But the bull market barely shrugged.