Why are gas prices increasing?

I'm often asked this question by friends and family. I sometimes answer them by reminding them of the little sign that pops up in the local coffee shop from time to time. It usually says something like, "Due to a poor coffee bean harvest, the price of coffee beans has gone up." So your morning cup of coffee will cost you a few pennies more. We throw an extra nickel or two on the counter but usually don't think twice about it.

Gasoline prices really aren't much different. The main ingredient, crude oil, is traded on the same commodity exchanges that those coffee beans are. And when demand for any commodity is greater than supply, the price goes up. As you see in the news, many oil producing countries are facing an uncertain future. Unfortunately, those concerns translate into higher crude oil prices. In fact, oil prices have tripled since 2000. Then, adding complexity, refined gases and other fuels are also commodities trades on the same floor as coffee and crude oil.

Demand for gas in the US and Canada has continued to grow despite the fact that refineries across North America are running flat out. While there is no shortage, there is little room in the system to meet the excess demand. In short, that is largely why the price of gasoline has gone up in the past few years. But instead of putting a little cardboard sign on the counter announcing the price, we think it's important to put the price on the big signs out front.

Well it may be hard to believe but there's a lot more money to be made selling a cup of coffee than by selling a liter of gasoline. That bigger profit makes it easier for the coffee shop to absorb increases in the price of coffee beans than for crude oil. But think about it, has the price of your morning cup of coffee ever gone down? Read more!

Manhattan Farmers

After taking the Rising Food Prices Quiz, a reader writes:

Developing countries could benefit from producing their own biofuels but they will need assistance to do it. First, they need the infrastructure for mass production (farming equipment, techniques, education, processing tools, etc.). If, in addition to producing their own food energy, they can also sell to foreign markets without having to pay high tariffs then biofuels can have a positive effect.

I definitely agree. It doesn't make any sense for the US (and other developed countries) to be spending tax dollars to subsidize "farmers" who are already millionaires living in Manhattan. Click here to see the map of how many there are. Obviously, a little money in the direction of those eating mud cookies would have a greater impact.

Even better, how about a subsidy for English teachers?

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Do you like corn? So does your car.

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#887: Musical Warm-up

ELLLO music videos and podcasts of interviews can also be found here. Click the subscribe button to automatically receive updates in iTunes. It's free! This song is based on interview #887.


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Dirt Cookies

This week, Brian talks about the Canada's strong economy. Other countries have not been so lucky. Here are the effects of rising food prices in Haiti:




It's lunch time in one of Haiti's most desperate slums, but because of rising food prices, some of the poorest can't even afford a daily plate of rice. Instead...

they are taking desperate measures to fill their bellies. This mother and her toddler now rely on a traditional Haitian remedy for hunger pangs: cookies made of dried yellow dirt. The remedy has long been used by pregnant women and children as an antacid and source of calcium. But now cookies made of dirt, salt, and vegetable shortening have become a regular meal for some. Food prices are up as much as 40% on some Caribbean islands after floods from last year's hurricane season damaged crops. Because of that, Caribbean leaders held an emergency summit to discuss cutting food taxes and coming up with ways to reduce the islands dependance on imports. Haitian doctors say those that rely on the cookies are at risk from malnutrition. And officials warn that dirt can contain deadly parasites or toxins.
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