As Cal Poly students go about their daily lives, attending class, studying and squeezing in time for extracurriculars, a series of events occurring somewhere far away is inevitably having an impact very close to home; specifically, at the gas station.

Gas prices are approaching record highs and California remains one of the most expensive places in the country to fill up.

Business Insider, a business news website, said $4 is the price tolerance threshold for consumer behavior change, and according to a Los Angeles Times article, California gas prices averaged $4.205 in the last week, $1.115 higher than last year. Some fear prices will continue to rise, reach and possibly exceed, the record pricing high of $4.086 from June 2008.

The big question is who — or what — is to blame? Senator John McCain said President Obama was to blame for 2008’s record spike in gas prices, due to Obama’s opposition to drilling oil in the U.S. Most news organizations cite unrest in the Middle East as a primary cause. Others blame it on speculators, but rarely clarify what this exactly means.

Economics professor Eric Fisher said the economics of gas prices is something most people neither understand nor care about. But among those who do know and care, there tends to be strong differences in opinion regarding which factors are believed to be most important. This depends on the person’s political persuasion, their level of education or indifference and the media outlets they choose.

In general, the factors that influence fluctuations in gas prices can be broken down into four interrelated parts according to Fisher, political science professor Emmit Evans and finance professor Herve Roche.

1. Supply and demand
Two opposing viewpoints exist regarding the idea of supply and demand and its impact on gas prices.

The first viewpoint is increasing demand and decreasing supply. Fisher said the growth of India and China is partly responsible for an increase in demand for oil. These two economies have grown exponentially larger than they were not too long ago, causing a huge spike in the global demand for oil. Meanwhile, some believe supply is going down. Although not everyone unanimously agrees, the International Energy Agency said the world has passed the point of “Peak Oil,” meaning the maximum level of extraction and production has been reached, and from now on, production will decline.

Evans said this means oil prices will continue to rise and subsequent wars over oil will continue to intensify.

The second viewpoint is the polar opposite. According to Business Insider, demand is decreasing due to the high prices, among other reasons (Japan’s decreasing economic growth rate, etc.). Also Business Insider was not the only source to state that the market has an overabundance of oil supplies.

The U.S. Crude oil inventory has reported growth in the past year and Saudi Arabia’s Oil Minister Ali al-Naimi said the market is oversupplied. With this point of view, the argument for supply and demand is not the sole factor behind rising gas prices, so economists must consider other factors to determine rising costs.

2. Value of the dollar
The dollar is the currency used to trade oil on the global market. When the value of the dollar falls, foreign currencies become more valuable in comparison. Other countries are then able to buy more oil than they regularly can, driving up the demand and increasing the price in dollars.

3. Unrest in the Middle East
Political instability and unrest in oil producing countries has the potential to interrupt regular oil production and exporting.

But, according to National Public Radio, John Hofmeister, founder and CEO of the nonprofit group Citizens for Affordable Energy and former CEO of Shell Oil, said the unrest in Libya, Syria and other Middle Eastern or North African countries has not actually had much of an impact on oil production yet. The fact that it has the potential to do so creates irrational fears, which drives up the market prices, via speculators, which leads to the last cause.

4. Speculation on commodity market
While some view this explanation as a result of the other three factors, others view it as an equal cause, and still others see it as the primary cause of increasing gas prices.

Regardless of the level of importance one places in the commodity market’s impact, it’s important to understand and is rarely explained in the mainstream media, probably due to the complexity of the matter.

Commodities can be bought and sold on a market, such as oil, wheat or soybeans. When the concept of the Commodity Index began as the idea of turning a commodity into a concept that can be bought and sold through Wall Street shares, it made sense.

“Speculators” were then introduced into this process. These figures served as a middleman to improve the buying and selling process. An example of this, from Harper’s Magazine, is: if the corn producer had corn to sell, but no cereal companies needed corn at that time, the speculator would purchase the corn and hold onto it. Then, when the cereal companies did need corn, if there were no corn producers selling again, they could buy the corn from the speculators at a similar price. The purpose of the speculators was to provide market liquidity, meaning that assets always had the ability to be sold for a reasonable price. Speculators were originally supposed to be actors keeping the markets healthy and for this reason, had certain strict limitations placed on them.

Goldman Sachs, the global investment banking firm, created a loophole in these limitations on speculators. This gave speculators new powers and now instead of creating market liquidity, they could do the opposite: hoarding.

Speculators purchase huge amounts of oil for the sole purpose of selling it for a much higher price.

“Speculators are not contributing to society,” Roche said. “They are not at all interested in the things they buy, they just want to sell it later at a higher price.”

The entire process is then driven and intensified by the three other factors listed above. Roche used the example of trying to sell a used piece of paper.

“If someone tries to sell you a piece of paper, how much would you pay?” Roche said. “Five cents? What would motivate you to pay more for it? What if the seller told you they would sell it to you for $5, and also give you the name of someone they knew would then pay you $10 for it. Would you buy it for $5?”

Roche said the only reason the next person is willing to pay $10 is because they know someone who will pay $20 — and the only reason that person is willing to pay $20 is because they know someone who will pay more.

“They don’t care about the use of the paper, but only the fact that they think someone else will pay more for it,” Roche said. “A spiral starts and that’s how prices rise.”

President Obama recently created the Oil and Gas Price Fraud Working Group, to investigate the possibility that the oil markets are being manipulated in this way.

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