Rising gasoline prices have been in the news recently, and there’s a lot of talk about why this is the case. Rising demand due to a global economic recovery, a lower value for the dollar, supply fundamentals – these are just a few of the potential factors that can drive up the price of crude oil, which in turn impacts the price of gasoline.
Crude oil is one of a number of globally traded commodities like gold, corn, coffee and many others. The prices of such commodities are set in worldwide markets comprised of buyers and sellers reacting to economic fundamentals and perceptions of supply and demand for each commodity. This means that the price of consumer products based on those commodities – whether it is gasoline or a can of coffee – will fluctuate based on global commodity prices.
You might be interested in an article in The Wall Street Journal last week which made an important point: Many of the same supply and demand factors that could be driving up crude oil prices are pushing up the prices of almost all commodities. According to the Journal, the price of crude oil – reflecting the thousands of transactions between buyers and sellers – rose 15.2 percent in 2010.
The Jan. 3 article, “Commodities Rally Across Board,” also points out that prices for precious metals like silver and gold rose 83.8 percent and 29.8 percent, respectively, while the price of copper, a base metal used in a variety of industries and nearly all personal electronic devices, rose 33.4 percent.
Similar patterns were found in agricultural commodities. Corn prices are up 51.8 percent in 2010, and wheat prices are up 46.7 percent during the same period. Even higher is coffee, which has seen a 76.9 percent jump in commodity prices in 2010.
Of course, rising crude and gasoline prices have a very real impact on household budgets across the nation. Gasoline is an essential product, and price rises are felt by families and businesses alike. I’m going to return to this subject in future posts, but I thought the Journal’s recent analysis of commodity prices is an interesting piece that helps provide some context for the recent increase in the price of crude oil.