Crazy Fuel Prices

Although the weather this winter was fairly mild, Americans spent more money heating their homes than they have in a generation. The mild weather kept the consumption of fuel low, which kept the demand for fuel low. That should result in lower prices, but they did the opposite and went up. The price of heating oil reached $2.38 a gallon this winter which is the highest it has been since 1981. President Bush had to sign a bill to provide $1 billion in federal energy assistance to poor households in addition to $2 billion already allocated this year. "The hurricanes knocked about 80 percent of the gas production from the Gulf of Mexico off line, helping push the price of natural gas this winter to the highest levels ever," said Tancred Lidderdale, the senior economist for the Energy Information Administration, an agency of the Energy Department.

The inconsistency of the supply and demand for oil indirectly relates back to John D. Rockefeller's Standard Oil. Rockefeller used horizontal integration in which he was the only supplier of oil. Therefore, he was able to control the supply and the price so that it always benefitted himself. Even if the demand for oil was low, he was able to raise the price and still profit and benefit from it because people had no choice but to go to him. Although the circumnstances of the inconsistant relationship between price and demand are different, they are similar in that the people have no control and the relationship does not make much sense. It seems obvious that something should only be expensive when the demand is high, but in both cases the demand is not high but people must still pay outrageous prices because it is their only choice.