Arkansans may have experienced a little relief over Memorial Day weekend at, of all places, the gas pump. In most years, the three-day weekend marks the beginning of driving season, which increases demand for fuel to get us where we're going. And thus increases the price.
According to the AAA, average Arkansas gasoline prices fell nearly a full dollar from Memorial Day 2022 ($4.12) to Memorial Day 2023 ($3.13).
No one seems to be talking about it around the water cooler. Americans might believe that relatively cheap energy is our birthright. And when gas prices are low it's because that's the way it should be. A case could be made that we've had it so good for so long that the anomaly is when prices go up, not down.
How did gas prices fall that much in a year?
Simple. Oil prices went down. At this time last year the price was about $120 per barrel. Russia had invaded Ukraine, and the world punished Russia by putting a $60 price cap on its big resource and limiting where the Russians could sell it.
If you want to hit Russia where it hurts, limiting oil revenue is a good way. Oil funded 30-35 percent of Russia's budget before the cap. Now it funds 23 percent.
The Russians figured out other ways to sell it, but the price cap still hits them where it hurts and limits the markets in which they can sell. This is good for the United States and the rest of the free world.
We believe in the free market; limited government interference is best when it comes to where prices land on most things. And while there's no question governments across the globe do their best to influence pricing for critical resources such as oil, we also know of few better examples of how the law of supply and demand works in its most basic way than the oil industry.
When oil prices are low, oil companies cut back on drilling plans. As companies do this, demand begins to put pressure on supply. Prices go up and companies get back to it. When prices stay high, drilling continues and supply eventually catches up with demand, which eases prices. Around and around we go.
The price of oil today is in the low $70 range; that's why the price at the pump is a dollar lower than what it was a year ago. It's difficult to predict the price of oil, but not hard to predict that when it goes too low, companies cut back, the rig count goes down, and demand eventually strains supply.
As they say, the cure for high prices is high prices, while the cure for low prices is low prices.