How can rising gas prices be a result of better economic data?

Posted by admin as Gas Prices

It is said that the recent hike in oil prices is because of a sign that the economy is getting better.

So how is it that in 1999 when the national unemployment rate was only about 5%, gas was at an average of $1.75/gallon?

Why was the economy/oil relationship back then not the same as it is now?

It’s because of the relationship of supply and demand. Back then we were not consuming as much gas as we are today and suppliers were able to keep prices lower. However, as demand for gas increased at a faster pace than the supply for gas(because oil is scarce), suppliers were forced to raise prices in order to control the demand.

Gas prices are a result of better economic data because if prices are going up it means that suppliers are raising prices in order to combat the increase in demand. An increase in demand means that people are traveling more and spending more money on gas; hence, this leads economists to believe the economy is improving.