January 23, 2008

California gas price fluctuations (Naturalist Essay 1)

Why do California gas prices fluctuate so much?

Gas prices have been increasing all over the united states for a variety of reasons. More and more people are demanding oil, including new demand from China and India. Production decreases as a result of hurricane Katrina and other events have also played a roll in increasing gas prices. But why is it that California seems to always have the highest gas prices and the most fluctuation of prices? The majority of domestic oil produced for the U.S comes from the Gulf of Mexico and so we could expect that prices would be higher the further you are from there.
I believe the reason California has gas prices higher than the rest of the U.S is because the large number of people who live in the state. Pollution in California is a big problem and the state has set standards on gasoline that are higher than the federal standards. The higher standards within California restrict the trade of gasoline. The result is a trade off between price increase and a decrease in pollution. The state of California operates its own refineries to produce this gasoline so additional taxes are placed upon the fuel.
California operates its own refineries so there are a smaller number of suppliers. The refineries in the state usually operate at maximum capacity to fill the states demand so when a refinery shuts down, the others within the state cannot produce more to keep the same level of supply. If one plant shuts down and the supply is cut, prices will be pushed up. California cannot easily replace the supply because of its restrictions on gasoline and its proximity to the gulf. As plants in California shutdown and reopen, the supply will be greatly reduced and increased. The result is a large fluctuation in prices. Many other states in the United States do not have gasoline restrictions above those set by the federal government. If a refinery is shut down in one of those states, the state can then buy gasoline elsewhere to keep the level of supply relatively similar to its previous level.
Proximity to resources and restrictions are causes for price fluctuations in California that are not experienced in other parts of the country. There could be other reasons for high prices and fluctuations in California. The cost of living in California is higher that some parts of the country and income levels will reflect that. Higher income levels may result in consumers being less price sensitive to fluctuations in gasoline. California may also not have as many gas stations that are close together so the individual stations have more power and can charge a higher amount. Other areas, such as Garden of the Gods road in Colorado Springs are full of gas stations. The gas stations on Garden of the Gods face a large amount of competition and will price their lower in order to stay competitive.

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