Last week, gasoline prices in Ohio fell by 32 cents right before the Memorial Day weekend. This was welcome news for Americans as they prepare for the upcoming driving season. The drop in prices, however welcome, isn't enough. Americans, many of whom still experience financial hardship from the 2008 economic downturn, are not happy about paying nearly $4 per gallon at the pump.
Two years ago, gasoline cost $1.86 and now it averages $3.85. Americans would like to return to the era of a buck something.
Nevertheless, we are far away from those days.
Until we reduce gasoline costs to an affordable level, families will continue to cut back on their overall spending. According to a May BankRate survey, "nearly 2-to-1, Americans say soaring gas prices have led them to cut nonessential spending like dining out or taking vacations."
Unfortunately, this sentiment will be the trend for the near future and Americans won't see much relief at the pump.
The Energy Information Agency forecasts that gasoline averages from now until September 30 will be $3.81, up from $2.76 last summer.
Many factors and uncertainties contribute to the rise in gasoline prices; however, we can be certain of two issues, which will almost certainly contribute to the price of gas for the rest of the year: our weakened economy and growing global demand.
Oil is traded in U.S. dollars and the decline in the value of the dollar has inflated oil prices, making gasoline more expensive. A recent Joint Economic Committee report says "the dollar's decline accounts for 56.5 cents of the $3.93 current price of gasoline."
In order to lower bloated prices and have affordable gasoline, we need to reduce our deficit and strengthen our currency. If deficit reduction can be achieved, the Federal Reserve will stop printing the excess money that is hurting drivers at the pump.
In 2004, the world markets began to receive signals that emerging economies', like China, heavy demand on oil would shrink available oil supplies. Between 2004 and 2008, the price per barrel of oil increased by 350 percent, from $30 per barrel to $135 a barrel. Over that same four years, China's demand for oil increased by over 40 percent, from 5,578 to 7,817 thousand barrels per day, a major contributing factor to the unending increase in oil prices.
Skyrocketing demand, in combination with supply interruptions due to Hurricane Katrina and the turmoil in the Middle East -- has caused prices to rise dramatically. Predictable outcomes like this can be avoided if Americans bring more refining capacity online.
Despite the global economic downturn, this explosion in consumption has showed no signs of stopping. In 2009, China became the world's second-largest consumer of oil behind the United States.
If the United States doesn't become self-reliant and as growing economies place greater demand on global oil markets, we will see even higher gas prices because of even more constrained oil supplies. Given this predictable outcome, the United States should embrace better access to Alaska's oil resources by conducting annual lease sales and extending drilling leases in the Gulf of Mexico that were negatively impacted by President Obama's moratorium on offshore drilling. Earlier this month, the President suggested drill, baby drill, but his commitment to lowering prices is anemic, he has flipped flopped on this position twice during his presidency.
Soaring gas prices are the direct result of irresponsible energy and monetary policies. The American people are demanding action from Washington to move the economy by balancing the budget, reducing the deficit and using the national resources we have at our disposal.