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Textbook economics explains much of gas price rise

AAA cautions comparison to 2020 isn’t exact

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Spikes for Alabamians did not come this week as much with Crimson Tide touchdowns as they did with their cars’ fuel tanks.

The state ranked sixth-highest in gas price increases as the price at the pump per gallon rose 12 cents during the past week to a state average price of $3.02.

Some gas stations in Oxford raised prices to $3.09 a gallon this week, with the prospect of them going higher.

Nationally, the average cost per gallon stands at $3.27 — 10 cents more than a month ago and $1.09 more than a year ago.

Two cents of the recent in-state increases come from the Oct. 1 implementation of the third phase of the Rebuild Alabama Act, approved by the state Legislature in 2019 to add a total of ten cents to the state’s gas tax and raise money for transportation infrastructure repair and replacements.

However, the major source of the rising costs comes from the old economic textbook chapter describing when demand outweighs supply. Add a little greed from the major suppliers, and it produces a perfect storm of higher prices.

“Many people want to compare the prices to 2020, which was during the pandemic when travel and demand were significantly down,” AAA Alabama Public Relations Manager Clay Ingram said. “There just is no comparison.”

“The one thing that has us puzzled is the higher demand,” Ingram said. “This is not the normal time of year when we see high volume travel. Memorial Day is usually the largest travel period. But, it is now football season and it could be people are just looking to get out after being cooped up inside because of COVID.”

Ingram noted one of the other items that has played a major part in the price hike is OPEC’s lower production rate.

“They do this to raise the price per barrel and make more money,” he explained. “The cost per barrel now is around $78 and should usually be $60 to $65 this time of year. Now that they have made their money, we expect production to once again increase in the next few weeks and prices will start to come back down. It’s almost an annual event.”

Ingram added the recent hurricanes have slowed the crude oil production at Gulf Coast refineries, but 97 percent of them are back at full production.

He said AAA had received a call asking why there is no blame for the high prices placed on the decision not to build the Keystone XL pipeline extension.

“It was not built, was never in service and therefore is not a factor in the current situation,” Ingram said.

“We expect prices to go up maybe between five and 10 cents over the next few weeks before they start dropping back off,” he said. “We don't see it as something to panic about.”