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Why Are Fuel Prices So High

By Edited Oct 18, 2016 0 0

The price of fuel in the United States, and in many other countries around the world, is currently very high. Notably high are the prices for both gasoline and crude oil. While the price of crude oil could perhaps be considered the more important of the two, as it directly affects the price of the other, most average Americans are more concerned with gasoline prices.

The average price for a single gallon of gasoline in the United States hovers at the $3.50 to $3.75 mark, though in some parts of the country it can only be found for over $4.00. For many Americans, this is a sizeable chunk of their paycheck and the high price of gas is a reason why so many are looking for ways to save on fuel.

But before the country can really figure out fuel savings, both independently with citizens making small changes to the way they think about driving, and on a larger scale with the government and gasoline companies working to lower prices, a thorough understanding of fuel’s history is needed. Only when you know why fuel prices are so high can you work towards a solution. Plus, the reasons behind the high fuel prices of the modern day are interesting in themselves. Below the high price of fuel in America is examined and explained.

How Oil Affects Gasoline Prices

As briefly mentioned above, the price of crude oil plays a big role in the price of gasoline. As the price of crude oil fluctuates daily, so does the price of gasoline. At the most basic level, gasoline is produced from crude oil. Without crude oil there could be no gasoline for our cars.

With this in mind, crude oil makes up just over 70 percent of the price of gasoline. The remaining 30 or so percent comes from other things including production, distribution, refining, taxes, and transportation. The 30 percent for other things is generally relatively stable. It doesn’t fluctuate much. Instead, the reason that we sometimes see spikes in gas prices is because of the supply of crude oil and the prices attached to it in particular.

The price of crude oil is primarily affected by the principle of supply and demand. When there is a lot of it being produced, the price goes down slightly. When there isn’t a lot of it being produced, the price goes up. However, small fluctuations in price are also due to oil contracts. These oil contracts depend on future predictions of oil prices by investors. It’s all slightly confusing business but it basically depends on people selling oil for predicted prices and then the buyers of the oil needing to sell it above this price to make a profit.

One last reason that fuel prices for oil and gasoline alike are so high is that the value of the dollar has declined in recent years. Oil is bought and sold in dollars so a decline in the value of a dollar places stress on the oil market which leads to an increase in oil prices.

Why Gasoline Prices Are Still Going Up

It makes some sense that gasoline and other fuel prices would eventually even out. But that’s not the case. Part of the reason there is almost always a slight rise over the years in the average price of a gallon of gas is that the amount of oil in the world is steadily being depleted.

Furthermore, you can almost always expect the springtime season to bring slightly higher gas prices. Basically, this rise in price is due to the investments of oil producers and traders. Playing off the concept of oil predictions discussed above, these traders know that the spring and summer bring an increased demand for gasoline so they set oil prices high beforehand.

So, all in all, gas prices continue to go up because the demand for gasoline continues to rise even as oil reserves dwindle. Plus, oil investors often predict a greater demand during the warmer and busier months and trade the crude oil with higher prices in mind.

What Else Can Cause Gas Prices to Go Up

There are many other things that can cause fuel prices to temporarily blip upwards. If you live in the U.S., then you have probably noticed several such blips at the gas stations while filling up your tank during the past few years. Most of the things that cause temporary blips are temporary causes in themselves.

For instance, problems at major refineries can cause gas prices to skyrocket as evidenced in September of 2012 in California. During this month, the Exxon refinery suffered a power outage which caused a shortage of gasoline that led to the extremely high per gallon price of $4.50 at many Californian pumps.

Another problem that can plague major refineries is basic maintenance. Refineries have to be shut down seasonally for maintenance to ensure their proper working order. If the maintenance occurs at the time of another problem, like the abovementioned power outage, gas prices can shoot through the roof for a few weeks.

Furthermore, natural disasters or even potential military action can cause fuel prices to rise. When a major natural disaster is predicted, many refineries have to shut their doors for safety purposes. When an outbreak of military action is potentially on the horizon, oil prices shoot up as concerns are raised over future availability.

Basically, almost anything on a national scale can cause changes in the price of both oil and gasoline. The price of gasoline in the United States really does act as a barometer of sorts.

Will Gas Prices Ever Go Down

It is hard to say whether gas prices will ever go down. The amount of oil in the world is certainly finite so gasoline in turn will become an increasingly valuable resource. This doesn’t bode well for fuel prices in general.

 The most probable way that gas prices will go down is if we lower our demand for it. The only reasonable way to do this in the long-term is by cutting down our dependence on foreign oil and switching to alternative forms of energy, especially where fuel for vehicles is concerned.

In the meantime, a great way to reduce your spendings on gasoline is by limiting the amount of time that you spend driving thus eliminating the amount of fuel that you need in the first place. The absolute best way to do this is by moving closer to your workplace to reduce your commuting time. If you live close enough to work and if local conditions allow, you might even be able to ride your bicycle or walk to work. If this is not the case, both public transportation and carpooling are two options that can greatly impact your overall fuel spendings.

The high fuel prices experienced in the United States and around most of the world are caused by many things. The primary reasons for the prices are increased demand for gasoline and a decreased amount of it. Though fuel prices will ebb and flow as they mostly always have, there is no reason to truly suspect markedly lower prices in the near future. Instead, it is up to you to change your lifestyle bit by bit, reducing your dependence on fuel, so that you can save money that would otherwise be spent on gasoline.

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