Why Are Gas Prices Going Up?
There are several factors behind the recent increase in gas prices. Lower oil supplies are one. Rising demand is another. Meanwhile, refinery capacity is at a premium. All of these factors will contribute to higher prices. But which one is causing the rise? In this article, we’ll explore the three factors most likely to cause gas prices to rise. But which factor is the most likely culprit? And how can we fix it?
Lower oil supplies
In January, crude oil made up 52% of the cost of a gallon of gas. By February 2022, crude oil will make up 61% of the price. But, for now, gas prices remain high. According to the U.S. Energy Information Administration, gasoline prices will peak around $4.60 per gallon in the U.S. This is still a considerable rise from last year’s low of $3.63.
In late March, Vice President Joe Biden ordered an unprecedented withdrawal of oil from the Strategic Petroleum Reserve. While Biden has sought to reign in the rise of energy costs, his efforts have failed to contain rising gas prices. While conservative commentators and Republicans are pointing fingers at Biden’s climate policies, energy analysts say the President has nothing to do with the rising prices. While the White House can do symbolic and counterproductive things, it is not the cause of the price increase.
Increase in demand
Rising gas prices have several possible causes, and experts tend to agree on three of them. The largest factor is rising crude oil costs. Last month, crude oil costs accounted for 60 percent of the cost of a gallon of gasoline. That’s up from 50 percent a year ago and 25 percent a year from now. During this period, there were also issues with the outbreak of pandemic influenza, which sapped demand. The rising cost of oil is the leading cause of the price increase.
In recent weeks, gas prices have hit an all-time high. According to AAA, the national average price reached $3.02 per gallon in the week of June 13, and is nearly 50 cents higher than the peak gas prices of 2008, which was $4.14 per gallon. At this time, the statewide average has risen above $6 a gallon. Analysts predict further increases. Ed Hirs, an economist at the University of Houston, estimates that gasoline prices nationwide will be $6 a gallon by Labor Day. Similarly, Natasha Kaneva, the head of commodities research at JPMorgan, predicts that prices will top $6 per gallon by the end of August.
Increase in supply
As you can imagine, the recent increase in gas prices is a result of rising oil prices. Oil is a key ingredient in gasoline production and higher prices translate into higher costs. Although a pandemic in the Middle East pushed up oil prices, it was largely offset by increased gasoline production. However, the Russian invasion of Ukraine is exacerbating the situation. Because of the conflict, rich countries will no longer buy from Russia, thereby reducing supply. The only way for gas prices to fall is if oil demand declines and supply increases.
The price of oil is determined by international trading and is based on supply and demand balance. Any disruption in this balance can cause dramatic price swings. Currently, the United States is the largest producer of oil in the world, but we are becoming a major exporter of petroleum products. This makes it necessary for oil prices to increase to offset the impact of the pandemic. However, this doesn’t mean that we should give up our favorite fuel.
Refinery capacity
One of the reasons why gas prices are going up is the lack of refining capacity in the U.S. The number of refineries in North America has decreased by more than one million b/d over the last three years. Of this, nearly 600,000 b/d is in Louisiana alone. In response, ExxonMobil added capacity at its Baton Rouge Refinery, one of the few refineries to expand in the past 20 years. In fact, the refinery’s capacity is equal to a new refinery that was to be completed in 2023, but was delayed by the pandemic.
One major factor in driving up gas prices is the increase in cost of refining crude oil. As a result, the United States is now importing more petroleum products than it produces, and this is pushing up the cost of gas. However, the price is not driven solely by the supply of fuel; other factors, including higher taxes, also contribute to high gas prices. The United States is the world’s largest producer of oil, and is a leading exporter of petroleum products.
Taxes
While there are many factors that drive the price of gasoline, the biggest factor is the rising cost of crude oil. In April, crude oil accounted for 60 percent of the price of a gallon of gasoline. Compared to a year ago, the cost of oil was 52 percent higher. Meanwhile, the number of refineries has increased dramatically. Most US refineries are currently running at near-full capacity. The rising cost of crude oil is the main cause of higher prices for gasoline, even though taxes are a minor factor.
The financial pressure on the oil companies goes back to the 2008 recession, which made investors less likely to invest in oil companies. Although the price of gas fluctuates from state to state, the federal tax on gas is a consistent one. In January 2021, the federal excise tax on gasoline was 18.4 cents per gallon. Even though high gas prices are an annoying nuisance, the overall cost of gas has decreased as a percentage of household spending.
