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Local economist crunches numbers when it comes to high gas prices

“Everybody looks to point the finger of blame,” says Dr. Jim Libby. “There’s a lot of blame to go around.”
Published: May. 16, 2022 at 4:37 PM EDT
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Maine (WABI) - Gas prices nationwide have gone up for the fourth straight week.

The national average is now $4.46 per gallon, up 15.3 cents from a week ago, according to GasBuddy.

As of Monday, there are only three states with a gas price average below $4 per gallon – Georgia, Kansas and Oklahoma. Even so, those states’ averages all sit at $3.98 per gallon.

Patrick De Haan, head of petroleum analysis at GasBuddy, said prices later this week could be closer to $5 per gallon.

The record high price gas is guzzling money from our wallets.

It’s also making many wonder why exactly the prices seems to fluctuate so much and so often.

Joy Hollowell tries to break it all down for us.

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“Economists create models. We look at all the different variables that might affect {oil and gas} prices. There are about 22 different factors.”

Dr. Jim Libby has taught Business Administation at Thomas College in Waterville for more than 20 years. He’s also taught Economics at Colby College for more than six years. Libby created a model to help understand both the rise and fall of prices at the pump.

“They’re forces crashing into each other is the best way to put it,” says Libby. “And right now, the forces that are causing upward price pressures are far greater.”

So, let’s start with the Russian war in Ukraine. Does the majority of blame fall of that like so many have said?

“Russia produces about 11 trillion barrels of oil per year. 7 billion on a daily basis,” says Libby. “So I’d say it’s within the 8-10% impact on my model right now.”

Which leaves about 90% of this pie chart still to fill. Libby lists an increase in demand worldwide, net capacity distributions from COVID 19, speculation hedging, a lack of storage capacity and the typical summer hike as contributors. But the biggest factor, according to Libby is the cost of cash.

“In my model, it’s definitely the devaluation of the dollar,” he says. “That has occurred at both the Congressional level between borrowing and spending, and by the Federal Reserve through printing more money.”

So what’s going to cause prices to fall? Believe it or not, rising interest rates.

“Eventually when inflation eats into people’s ability to spend, they’ll slow their spending,” explains Libby. “And that will slow demand for oil.”

And that could happen as soon as this summer. But don’t rev your engines just yet-

“To be honest with you, after this settles out, I don’t see prices ever going back to a buck 95,” says Libby. “I think they’ll settle at some point after the middle of summer. I think they’ll settle somewhere in the middle to high threes.”

As for whom to blame? Libby says everybody wants to point the finger at one person when there’s actually a lot of blame to go around. “There’s Congress, there’s the president, there’s the Federal Reserve, there’s the oil producers. When it comes right down to it, I have to incorporate all of that into these models.”

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