Why Gas Prices Go Up and Down
We've all asked the question. Following are four main things that influence the price of gas:
1. The Cost of Crude Oil- If there is one thing that does the most to determine the cost of gas it's crude oil prices; in fact, from what I have gathered, well over 50% of the price of gas is simply determined by what crude oil is being bought and sold for. Every economist will tell you the same thing- a product or service's price is determined by the laws of supply and demand. If there isn't as much crude oil being produced as a result of a hurricane knocking out a number of our refineries in the Gulf Coast, we're going to see a spike in gas prices. On the other hand, as more and more is being produced and supply is higher, typically the price drops. All products are that way! Also, with China demanding more and more oil, the bidding wars become more and more fierce. The United States imports about 2/3 of its oil, so as the demand gets higher, the price goes up.
2. Refining Costs- As oil is brought out of the depths of the ocean, we don't wrap it up in a box and put a bow on it already; it's got to be refined! And the cost of refining our oil puts a fairly large determinant on what we pay at the pump.
3. Taxes- Uncle Sam has to get his, right? Federal, state, and local taxes can play a large part in what we pay; in fact, some says just taxes alone account for close to 19% of what we pay! Of course, that number changes all the time as the prices of crude oil go up and down, but it certainly plays a big part!
4. Distribution of Gas- The gas we pump into our vehicles doesn't originate under the gas pump at the Chevron! All the gas companies out there are paying for marketing and distribution of that same gas; so, just like any business, they help determine some of the prices of gas just based on business expenses and revenues. Though, with all the competition out there, they usually stay relatively the same!
One thing is clear from the above points- we can't always blame big oil companies for the prices we're paying for gas. Often, if not most of the time, the price we pay for gas is most determined by crude oil supply and demand.
Let's be grateful for the price we're paying right now for gas!
Trevor Shipp, the author, works as an online business consultant, student, husband, and business owner. Only just recently married, he and his wife take a serious approach to personal finance in their early years. Follow him on his personal finance blog, answering the question as to how to manage personal finances.
Tags: gas prices, society, low gas prices, expensive gas, why gas goes up, why gas goes down, high gras prices