Texas oil production is higher than it’s been since 1985. It has doubled in less than three years, and the boom doesn’t seem to be stopping anytime soon. Meanwhile, gas prices keep going up. Why?

The most major reason is inflation. If you look at an inflation-adjusted curve for gasoline prices, you’ll notice that inflation-adjusted prices have gone up and down over the past eighty years or so based on supply and demand, but during that fluctuation, the non-adjusted price of gas has done nothing but rise.

The constant refrain we’ve been hearing about “record oil company profits” only works because most of us assume that the steadily increasing prices in gasoline are due to either the consumption of a fixed resource or the greed of big oil. Let’s tackle both of those issues.

People think that oil is a non-renewable resource. They assume the price of oil is rising because we are using up oil, and as we use more of it, it becomes more scarce. All the while, demand for it is also increasing. So it seems like simple economics: rising demand and fixed supply equals steadily rising prices. But the oil price graph indicates otherwise. There have been great fluctuations in the availability and production of oil. Most people assume that, like gold, new sources of oil may be found, but new oil itself cannot be generated. I believe this is false, as I have written elsewhere.

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