Even when gasoline prices were at their highest this year, when adjusted for inflation, the prices U.S. consumers paid were lower than they were in the 1970s. When our gasoline prices are judged in relation to the gasoline prices in other parts of the world, they seem incredibly low. In their eyes, we have a terrific deal. And we do at least relative to most of the world. The answer is relatively simple.
Oil is a commodity, produced in dozens of countries and thousands of locations.
To a large extent, one barrel of oil is very much like every other barrel of oil. When a commodity like oil is traded in relatively free markets, its selling price is almost exclusively a function of supply and demand creating the seesaw effect. When two 50-pound kids are on a seesaw, one on each side, the seesaw is in balance and both kids are the same distance from the ground. This is similar to the way the oil markets determine price. The price fluctuates until a balance is achieved.