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How Gas Prices Work Were you ever curious about why you had to pay $50 or more to fill up your gas tank? This will give you a general idea of all the factors that may cause a rise in prices. We as Americans consume a large amount of oil, and around 10 million barrels of oil per day is just used for our motor vehicles. There is a breakdown of fuel consumption that the U.S Department of Energy releases monthly. Currently 72% of the cost is crude oil, 8% is refining, 8% goes towards brand marketing, and 12% to taxes. The crude oil market defines how the rest of the process will go. The Organization of the Petroleum Exporting Countries (OPEC) consists of 12 countries, a few being, Iran, Iraq, Saudi Arabia, Kuwait, and Venezuela controls the price of oil. If they want to raise prices all they have to do is lower production. In the past they have lowered production by 1.7 million barrels per day so that prices wouldn’t fall below $50 dollars a barrel. In April 2008, prices have risen to $119.00 a barrel. Unfortunately even the threat of a price increase will make some gas companies raise their own prices. International issues have an affect as well. As most people know relations with the Middle East can have an influence on prices. Wars can stop drilling or damage plants as well as disrupt distribution. Even though the United States is the third largest producer of crude oil, they still rely heavily on foreign imports. Weather also has an affect on prices, Hurricane Katrina interrupted some production as well as supply of oil and therefore prices were raised. Hurricanes in general can damage offshore drilling stations or sink tankers putting a large strain on the market. In our own country oil companies and refineries dictate the next cause of prices. Often times the demand of oil can outpace the oil refineries production. What a lot of people don’t know is that around this time in spring refineries perform maintenance, which can place a strain on the gasoline market. Usually around May prices will go down some, as long as the international market doesn’t get worse. Sometimes refining oil can make up around 20% of the cost of gas prices. The oil companies themselves will also charge you for their marketing and transportation. Don’t forget the actual service stations have to make a profit too; they will usually mark up the price a few cents. Despite our dependence on oil the United States has taken precautions so that our country can still be run as usual. The Strategic Petroleum Reserve (SPR) holds 1 billion barrels of oil so that that homes can have heat in times need or economic distress. There is concern that we will run out of oil to power our country, this is why alternate sources of fuel are being tested. What is likely to happen rather than completely running out of oil is that it just becomes too expensive. Oil companies look for the easiest oil to bring to the surface, once all of that is gone; they will have to look elsewhere which will make oil even more expensive. So unfortunately our financial situation will remain relatively the same, recessing at times, and spiking upwards at during others. It seems the only way to really bring down the price of oil and pay less at the pump is to stop being reliant in general. Regrettably that requires a legitimate new fuel source, and that is something that for time being remains undiscovered. |
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