Why Are Gasoline Prices So High?
By: Jake | May 26, 2008 | Category: Money
My post last week about saving money on gas had many of you asking why the price of gasoline was so high. You weren't the only ones.
Congress brought executives from oil companies to Capitol Hill last week and asked them to explain the price hikes. Unfortunately, there weren't too many clear answers. I'm not an oil expert or economist, but in this post I'll try to shed light on why gasoline prices are high.
The Energy Information Administration (EIA) of the Department of Energy (their job: to provide neutral data regarding energy in the U.S) says the cost of crude oil is the main contributor to the price of gasoline. Crude oil accounts for 70% of the price at the pump. According to the EIA, the spot price of West Texas Intermediate crude oil, which is the U.S. benchmark for light, sweet crude oil, has risen steadily from $101.54 per barrel on March 31 to a record high of $128.93 per barrel on May 20.
The main reason for crude oil's price increase is high worldwide demand. Countries like China (especially with the recent earthquake) have increased their imports of petroleum. Political events and conflicts in oil producing countries also affect the price. What's more interesting is that crude oil is traded worldwide in U.S. dollars and since the value of the dollar is declining, it causes the price of crude to go up.
In the EIA's "This Week in Petroleum" published May 21, they project prices will go up in June and will rise as long as the price of crude oil keeps increasing. The report adds that the usual Memorial Day and summer travel season increase in demand should be lower due to higher prices, but this will not have too much of an effect on price since millions will still travel. Policymakers have proposed lowering or repealing gas taxes, but it's not certain how much this would lower the price.
As long as the price of crude oil continues to rise, we'll be paying more for gasoline. Let's hope gasoline will never cost more than a gallon of beer or ketchup.
Permalink | View Comments [21] | E-mail This Entry | Tags: economy fuel gas gasoline jake oil world
Posted by weisongtao on May 26, 2008 at 03:57 PM EDT
Posted by ME in Texas on May 27, 2008 at 10:08 AM EDT
1. How much is made in profit per gallon? Who is making these profits. If the prices listed are true than please explain how all the oil companies are making record profits. I think over 90% of the 73% use in bring oil is clear profit.
2. The price of a barrel of oil is high because Our Wonderful Brave War-Chief is threating another war where the oil is shipped from.
3. The drop in the value of the dollar is because we are printing money at record speeds.
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Posted by Jake on May 27, 2008 at 10:39 AM EDT
Thank you for sharing your opinions. The chart is not mine, it's from the EIA, when your mouse rolls over it, a little flag should appear and tell you that.
I can't really discuss oil profit policy in this forum, but I can lead you to things that can inform your opinion. Here's an article from ABC about whether or not oil companies should be making profits with the price of crude oil rising.
http://abcnews.go.com/Business/IndustryInfo/story?id=4749343&page=1
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Posted by Don Brennan on May 27, 2008 at 01:29 PM EDT
Posted by I_ask_Y on May 27, 2008 at 01:59 PM EDT
1 Why is when the price of crude oil goes up FOR NEXT DELIVERY, the price of gas goes up within two days?
2 When the price of crude oil drops, we do not see the lower price until the higher priced crude oil has been use.
3 Who owns the refineries? Is it the oil companies? To me the refineries are making the windfall profits.
4 Who sets the price for the crude oil? I have not heard of the Oil companies saying… You must pay me X dollars for my crude oil. To me it looks like the speculators are driving the price up. Each is making sure he (or her) has the crude oil for its market.
I_ask_Y
PS: I ask a question because I do not know the answer.
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Posted by almann55@hotmail.com on May 27, 2008 at 02:05 PM EDT
Posted by Citizen Jmaximus on May 27, 2008 at 02:35 PM EDT
Posted by dkharley on May 27, 2008 at 07:53 PM EDT
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Posted by Cookie56 on May 27, 2008 at 08:11 PM EDT
Posted by LarryP on May 27, 2008 at 09:45 PM EDT
Posted by john6457 on May 28, 2008 at 04:35 AM EDT
Posted by Jake on May 28, 2008 at 10:11 AM EDT
Your comments about investors got me thinking about what was out there on the financial markets effect on oil prices. I found this testimony given to Congress back in December of 2007. It's a 20 page Word Document that talks about the history of the oil market and it's evolution. It's a long read, but it may answer some of your questions (and probably make you think of more). :)
Title of Paper:
Financial Energy Markets and the Bubble in Energy Prices:
Does the Increase in Energy Trading By Index
And Hedge Funds Affect Energy Prices?
http://energy.senate.gov/public/_files/Krapels_Testimony_Dec2007.doc Comment Permalink
Posted by steve on May 28, 2008 at 10:22 PM EDT
Posted by shannan on May 29, 2008 at 05:17 PM EDT
I hear over and over again that one of the major reasons that prices for food and other goods are going up is the high cost of taking the goods from the grower/manufacturer to the stores.
Just curious if there was any plan in the works like this. Comment Permalink
Posted by David and Susan on May 29, 2008 at 05:45 PM EDT
That is $10.32/gal. A bottle of whiteout costs $0.99. that comes to
$62.75/gal But printer ink is more expensive than gold. It's $21.00 for .5oz. that is $5,376.00/gal. So I'm glad my car isn't an HP. Comment Permalink
Posted by Jake on May 30, 2008 at 08:27 AM EDT
Congrats on making it through that document! It does reveal a new wrinkle to the oil price equation.
Shannan,
There has been talk about subsidies and things, but nothing that I have seen has come down the Senate.
David and Susan,
It's definitely good that our cars don't run on printer ink. It's amazing how quickly 5 ounces of printer ink runs out though. :)
Check back Monday for a post on alternative fuels. Comment Permalink
Posted by link360seo on June 03, 2008 at 11:45 PM EDT
http://video.google.com/videoplay?docid=2685196715390771582&q=Why+Are+Gasoline+Prices+So+High%3F&ei=NA9GSKH2MorQrgPym-XCDA&hl=en
I don't think links are allowed here, so copy and past.
Link360seo.com Comment Permalink
Posted by zulma on June 06, 2008 at 10:14 PM EDT
Iam 65 and don't want so much pedaling. Comment Permalink
Posted by Ihatethecostoffuel on June 10, 2008 at 05:06 PM EDT
What are pour people to do? We have to drive to get places of great importance to our health and other things.
I also believe the price of fuel is increased because of our greedy president; Oil man trying to make a buck before he is out of office, or for some reason trying to destroy our country.
I can see riots in the streets because of food prices so hi people will starve our country will turn in to a third world country, that doesn’t care if its people starve or not.
Mr. FBI I’m not instigating anything, I’m just stating what I think will happen.
God bless the people of this country because the government doesn’t care. They took welfare away from people that need it. As the saying goes the richer get richer and the pour get pourer.
Stop the damn war and get a clue Mr. worthless President.
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Posted by lincolntyler on July 15, 2008 at 05:29 PM EDT
Posted by jake on July 16, 2008 at 08:30 AM EDT
Don't know if you know this, but many people said the Supreme Court upheld the right to bear arms a few weeks ago when they said the DC handgun ban was unconsititutional. Read the decision here.
http://www.supremecourtus.gov/opinions/07pdf/07-290.pdf Comment Permalink