Why are Gas Prices So High

Why Are Gas Prices So High?

Nothing depresses people like rising gas prices at the pump. The price of gas determines so many things, for example, how much money we make and how much money we spend. Work expenses and inflation fluctuate with gas prices. Those factors are enough to make the gas prices affect every corner of our lives. It influences the price of groceries, heating our homes, and taking vacations without even considering the influence at work. So why are gas prices so high?

 

Has Gas Always been Expensive?

Let’s look at the factors determining the price of gas. These include

• The Cost to Produce a Barrel of oil
• Refining Costs (and profits)
• Distributing Costs
• Marketing Costs
• Profits and Tax Expenses

The cost to produce a barrel of oil varies significantly. Take the Saudi desert, the source of three percent of the world’s oil production. The cost of producing a barrel of oil there is $20. Go to North Dakota, and the producers of a barrel of oil engage in fracking, an expensive process. The oil is “squeezed” out of rock, which costs nearly $100 a barrel. The cost difference between producing a barrel of oil in Saudi Arabia and in North Dakota is dramatic. But as long as there’s enough profit, oil companies keep going after it. 

For instance, when fracking became too costly to be profitable, oil production stopped in North Dakota. Nothing else would have stopped it. That happened in 2015. 

Oil companies drill deep in the sea because money can be made

The reasons crude oil prices rise align with why prices for everything increased. It’s about COVID work slowdowns, the short supply, the Great Resignation, and the Russia/Ukraine war. Uncertainty from politicians with ideological issues doesn’t bode well for the future role of fossil fuels in the energy picture, but politicians have yet to deliver on the promise of electric vehicles. We’re all still standing at the pump asking why so high a price?

Another factor in price is the Refining Cost, the cost to produce gas from crude oil, which also varies considerably, between .40 cents and .70 cents a gallon. So, how does it arrive at the pump at almost four bucks a gallon? That’s due to the cost of distribution, the price they pay for marketing the product, and finally, taxes and fees from the government. The companies also want to find some profit at the end. It all contributes to the four bucks a gallon at the pump. 

What Happens When the Price of a Barrel of Oil Goes Down

In the estimation of experts, the oil picture is one of boom or bust. If prices of crude oil go down, the cost of transportation goes down, and the cost of production goes down. The cost of goods on the shelves also goes down because the price of crude oil influences the cost of transportation. 

One of the factors keeping the price of oil high is the value of the US dollar. When the dollar is worth less because of inflation, the price of a barrel of crude oil stays high. The oil price could come down without the dollar rising in value if the world experiences an abundance of oil on the market. That drives the price down. The reduction of demand through the use of alternative fuels could influence and bring the price down. 

Why is Gas Expensive Now?

The dollar’s value is doing as much as any other factor in keeping the price of crude artificially high. The oil supply is being artificially depressed to keep the price up. Nobody sees an end to high gas prices in the year 2023. That means inflationary pressures will continue despite lowering interest rates and suggesting that the US avoided a recession. 

Who Controls the Price of Gas?

Well, the truth is the government exerts little or no influence on the price of gas. That is to say that Biden can’t just push a button and reduce gas prices. Much of the gas price hikes and falls are determined by politics. There’s also a sense that the gas companies and local gas distributors (i.e., the gas station owners) determine the gas price.

What politics influence the price of gas? Producer nations have addressed the supply and demand issue by keeping the price high and the supply constant. The oil-producing companies are turning away from market forces that have pushed the oil market into unpredictable gyrations since Covid 19. The pandemic operated like a min-laboratory with many parts of the economy, following the lead of science, which partially shut down economies to fight the disease. 

As a result, oil-producing nations are in the driver’s seat, no pun intended, to maintain a maximum supply on hand. Bizarrely, the demand picture is now interpreted rather than reacted to. When oil-producing nations look at the ever-approaching horizon, for instance, seven years until the US is scheduled to switch 50 percent of its cars to EVs, they must wonder, as so many others in this economy, what will happen?

How High Will the Price Go?

Prices are expected to go up in the following months as OPEC cut crude oil production significantly drops enough that the inflated price remains high. The conventional wisdom is to sign up for gas rewards at your gas station, get gas rewards at the grocery store, download gas apps on your smartphone, and save money with consumer tricks.

Goofy Factors Influencing the Cost of a Gallon of Gas

Greed: When an oil-producing country believes they can raise the gas price if only for the heck of it, you get strange reactions. Recently, a move by Saudi Arabia to inflate the price of crude actually “crushed” the price of a barrel of oil. 

Gov Taxes and Fees: We pay almost twenty cents a gallon federal tax, and states levy whatever tax they want, so that fluctuation accounts for differences in the gas price due to government fees. The price of a gallon of gas differs from state to state. So, if you live in a border town, check the price across the state line and take advantage of price swings because of fees.

For example, people in Chicago cross the state line into Indiana to buy cheaper gas. That’s true of Chicago residents who live near the Wisconsin border as well.

Holiday Blips: In all probability, your local station determines whether you come in and buy gas. We usually stand at the pump blaming gas refineries for Holiday price bumps, but it might be the person who owns the station who raised the price. This pricing by competing stations is on display whenever side-by-side gas stations get into price wars.

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