Why Are Gas Prices So High
Why are gasoline prices so high? It seems that every week for about the last four months gasoline has jumped an average of ten cents a week. I asked myself, do people ever wonder why gas prices go up? When gas goes up, products of all types go up as well like lumber, shipping and freight costs. I hope to explain the reasoning behind this.
Gasoline is one of the major fuels consumed in the United States and the main product refined from oil. Crude oil prices and the level of gasoline relative to demand mainly affect gasoline prices. The increasing demand for gasoline in the United States is exerting pressure on available supplies. When crude oil prices are stable, gasoline prices fluctuate due to seasonal demand and local stations competition. Gasoline prices can change at the spur of the moment if something disrupts the supply of crude oil or if there are problems at refineries or with delivery pipelines.
Gasoline prices tend to gradually rise in the spring and peak toward the end of summer when people drive more, and drop in the winter. Good weather and vacations cause U.S. summer gasoline demand to average higher than the rest of the year. If crude oil prices do not change, gasoline prices typically increase ten to twenty cents from January to late summer.
According to Paul Davidson, journalist for the USA Today, "Gasoline prices are blowing past recent estimates, saddling consumers with higher costs just as the summer driving season shifts into high gear. Pump prices are not expected to approach last summer's wallet- busting $4 per gallon, but they could eat into consumer spending just as the recession is showing signs of easing." (USA Today Money section Pg. 01b 6/12/2009.)
Crude prices are also rising on growing expectations that at least a modest economic recovery will begin later this year.
Some worry higher gas prices could dampen a recovery. Ian Shepherdson of High Frequency Economics says "it could cut third-quarter consumption 0.7% doing "serious harm to (summer) retail sales" (USA Today Money section Pg.01b 6/12/2009).
People like to blame the corner gas stations for raising the price of gasoline, but the gas stations are not the ones doing this. Gas stations have the right to make a profit from the gasoline sold at their station so they mark it up so they can pay for the next tanks of gasoline.
Will gas prices stay high? According to Lynn Westfall, who is the chief economist at gasoline distributor Tesoro in an interview to Business Week Online, "As Americans begin the peak summer driving season, prices are likely to stay high for the near future hitting consumers in their pocketbooks". The Government Accountability Office (GAO) says that consumers already have spent twenty billion dollars more on gasoline this year than last. Right now, there are 150 grades of conventional gasoline to meet requirements in various cities and states. In the past if one unit at a plant went down, you could still make gasoline. Now every unit at a plant is required to be running at exactly the right ratio. The industry was not built to handle this capacity. We are importing more gasoline than ever, thirteen percent of demand. The foreign refineries were not built to manufacture our grades of gasoline (Business Week Online: 6/4/2007, p6-6, 1p).
From all accounts high gas prices are here to stay.
"Why Gas Prices Will Stay High." Business Week Online (04 June 2007): 6-6. Academic Search Premier. EBSCO. APUS Online Library, Charles Town, WV. 20 June 2009http://search.ebscohost.com.ezproxy1.apus.edu/login.aspx?direct=true&db=aph&AN=25366342&site=ehost-live.
Paul Davidson. "Oil price surge sends gasoline up." USA Today (n.d.). Academic Search Premier. EBSCO. APUS Online Library, Charles Town, WV. 20 June 2009http://search.ebscohost.com.ezproxy1.apus.edu/login.aspx?direct=true&db=aph&AN=J0E334592392109&site=ehost-live.