NewsWatch: 2009: Gas Prices Up

[Narrator:] From the University of California at Davis, this is NewsWatch.

[Paul Pfotenhauer:] Drivers have noticed that it costs more to fill their tank these days. The price of a gallon of gasoline has risen sharply.

[Christopher Knittel. UC Davis Economist:] The reason why oil prices are going up now is that traders believe that the recovery is occurring faster than initially thought so on the one hand you have faster recovery — more economic activity — that's a benefit but that also what comes along with it are higher oil prices.

[Paul Pfotenhauer:] Some analysts are saying that if oil prices continue to go up, it may kill any economic recovery.

[Christopher Knittel:] Any rise in the price of oil is going to have somewhat of a drain on the economy — certainly if we get back up to 100 dollars a barrel than we'll really have to worry that it will have inflationary pressures and so on but I would argue that anything between $60 and $80 a barrel the economy can absorb fairly easily.

[Christopher Knittel:] Knittel says oil prices — that are hovering around $70 a barrel — are driven by world demand.

[Christopher Knittel:] If California cuts their demand by 50 percent it wouldn't have much of an effect on world oil prices. The second factor is that prices today for oil are driven just as much by demand next year and the year following that as it is demand this year.

[Paul Pfotenhauer:] He says there is no reason to expect gas prices will reach the $4-plus levels of last summer, but it might certainly feel that high to many consumers who are fighting to make ends meet. Paul Pfotenhauer, reporting from Davis.

[Narrator:] For more information please log on to broadcast.ucdavis.edu.