Why are gas prices so high?

People tend to blame to their choice of villain when complaining about the cost of gasoline these days, but there is more than one reason for achingly high prices.

For example, gasoline inventory is lower than normal.  According to the EPA, during 12 consecutive weeks in February, March, and April, total U.S. gasoline inventories dropped by 15 percent.  This is the sharpest decline over  this ascribed time in recorded history. Also, lower import levels, refinery outages due to maintenance, and unplanned refinery incidents have contributed to a slowdown in supply growth. And yet, gas demand continues to rise despite prices well over $3.00 a gallon in many regions.

There are also global factors, such as increased demand for fuel by developing countries--including India and China--as well as tensions in the Persian Gulf, from where a large quantity of oil is sourced.

So, what does this mean for drivers this summer travel season? Prices are expected to remain high throughout the summer, because inventories are likely to remain low. As gasoline imports increase, domestic refineries come back into production, and as supplies improve, we could see prices come back down... possibly after the summer travel season.  In the meantime, see our tips for saving fuel and our guide to fuel economy for information on fuel-efficient vehicles and alternative fuels. Also, check out the U.S. weekly gas prices in your region.

--Liza Barth

Comments

[Sharon Hutchinson]

It is really hard to believe the "low inventory" argument, as well as others that have been put forward. Why? The oil companies are posting RECORD PROFITS. It doesn't take a genius to figure out what is going on, particularly when it is stated that prices are likely to go down after the summer season. The public is not that stupid; or are they?

[Arthur McDougal]

How about some reviews on motor scooters?They seem like a good alternative mode of transportation.

[Bill]

Yes, oil companies are making record profits, but no one seems to realize that gasoline isn't the only thing they sell. Take plastic for example. I don't know how many people realize that plastic is in fact made from oil. Where is the oil coming from? That's right, big oil companies. Ever notice how many goods that once were wood or metal are now plastic? Now: Put it together and what do you get? Oil companies are selling more oil for plastic that ever. Thus they make record profits.

[Deana]

What I want to know is why the oil companies do NOT have to pay taxes on their gains? In the mean time the people who are just trying to get by, having to get to work, (not everyone lives 10 minutes from their job), has to pay the taxes on that fuel which in not being taxed to the oil companies. Who is getting "bent over" on this one?

[Ted Jimmo]

$3.05 per gallon (US $) is about $.089 per litre (Canadian $), just below the average price in Canada. Only in Canada we pay more taxes (about 42% according to the stickers on gas pumps). When US prices approach Canadian, without the extra taxes- well, you do the math. Profit is not a bad word, but gouging...

[Steve]

Please don’t ignore the speculate side of this equation, the futures market. Here few big players could have great influence on the direction of pricing. OPEC and Big Oil have a significant interest in the day to day activity of this market. This would offer them a convenient excuse as the market is supposedly driven by supply and demand forces, yet offer them lucrative opportunities to steer the market as major players. But as we all are all aware speculation is so crazed that the slightest suggestion of a supply interruption drives it through the roof. So think about it, if you have major influence in a highly speculative market, you could potentially drive the market with the suggestion of bad news combined with strategic changes in your market position.

When oil prices began this significant increase, OPEC expressed concern as to the economic consequences of the rising prices and made a show in their efforts to control pricing through output adjustments. But they have grown quiet with their concerns and comfortable with the revenues. They no longer show concerns as to the price of oil and if anything are working to maintain prices at their current levels. At the same time Big Oil is becoming notorious for staging refinery shutdowns to coincide with the seasonal increases in demand and, oh by the way, other plants just happen to break down at the same time. Bottom line, they are richly rewarded for the timing of these events. So from a business standpoint, it makes sense, limit capacity and increase profits. So why build more plants, it only stands to threaten profits by creating a competitive environment. There is apparently little concern about ethics or being a responsible corporate citizen. Microsoft was held accountable for using its influence to the detriment of the consumer, but not Big Oil! But that’s the political component of this problem, a discussion for another day.

[Tim]

Sorry to burst your bubble Deana, but the BIG OIL companies do pay taxes on their gains just as any other US company. Check their annual report. I think you're confusing the gas tax your local government tacks on to a gallon of gas. Blame them for that and ask them to lower your taxes.

[jordan malan]

I use the MPG caps. They seem to work. I am experiencing 5-7 extra city miles in my V6 truck. It did take a while though, I almost gave up on them.

[R Bartho]

Try to keep in mind that every year our US population grows by 3 MILLION people. That means more people driving and buying a limited commodity. It's the law of supply and demand.

Why do home prices go up? More people looking for houses. Do we gouge the buyer?
Of course we do; we are not going to be nice sell it to them at a price they can afford. We want to maximize our profit and sell to someone who can afford it.

Want prices to drop? Have fewer children and limit immigration and you will see a drop in demand and prices will drop. Novel idea...Any questions?

[Lee]

Very few new refineries have been built in the last 25 years. --Supply ++Demand = price/profits go up.

[tanner]

I think that one reason gas prices are so high is the cost of living has went up in many places. I also think this country is growing very fast so they are a greater demand for gas.

[Andy]

OK - gouging huh? Do this simple check - take your life savings, and go to a financial advisor - tell him to invest it all in BP or ExxonMobil - call me in a century - cuz none of them will do it. Why? Its underperforming stock. Rate of return is good - not good enough. How many of the oil company stocks show up as a common thread in mutual funds? None - not like Microsoft, GE etc... Now go back to the massive profits in a time period - look at volume sales - hmmm trend is here - high volume, high profits. Means the gross margin is staying somewhat constant. So the demand is paying profit on volume, not per gallon profit. Now take all your savings an look at futures.....

The China point is excellent - the country makes 44% of the worlds concrete - its not moved in rickshaws - nor is the WalMart crap - all by train/plane automobile folks - out of China in Spetember to be snatched up by us for Xmas....

BTW - has your state capped their sales tax as price has moved? Did they forget to tell you they are gouging you as the price goes up (they take a % of the sell price right)? I cannot wait to see a state AG indict his own governor - but they still keep appealing to the masses by huffing and puffing. They had a solid case with ciggarettes and got the industry - why not gas? Cuz it ain't there. Start believing the facts - research it - the internet gives you real info - good or bad - not just what you feel you want to hear.

Wake up - the warfare of tomorrow is capitalism....

[JAmie]

Record profits.... You all mention Opec.... Is USA a member of OPEC? NO
Is Canada a member of OPEC? NO
Why is gas 30 cents a gallon in VENEZUELA / SAUDI Countries? (See Citgo offering discounted heating oil in US... unprecedented)
Gouging is the name of the game. USA /Canada do extract a considerable portion of their own oil, yet are not members of OPEC. The use of Oil is not like gold or diamonds. It is a highly used commodity that is relatively inelastic. Although I think from an environmental point of view it makes sense to lower foreign dependance (raised prices? NO), gouging from Oil companies could be countered through a government tax (eg gross profits over X dollars per year from oil and related industries) would be designated to go to development of permanent renewable energy resource production. This would lower usage of oil / coal at the cost of the gouging we experience. Thus, it would serve to solve several problems at once. Good luck selling this to oil man Bush. Maybe i should email him my message at the Bin Laden ranch in Saudi Arabia

[Ken in Maine]

Oil prices are set by global supply and demand, NOT Exxon-Mobil. Today there are about 6.6 billion people; that's about 3 billion more than at the end of WWII.

Looking ahead at demand over the next 25 years with 8 billion souls on the planet, you will see gasoline prices rise to $4/gal to $5/gal to $6/gal as living standards rise around the world. Kiss $2/gal gas goodbye and forget about oil company conspiracies.

Energy is the number one problem facing humanity. The Consumer Report article at the head of this string trivializes the problem. We need a new "Apollo Project" for energy.

[wondermike]

Crude oil daily extraction rates have been flat for the last three years when all of the current oil exporting countries output is combined. Those countries are also experiencing growing domestic demand of the oil and have less to sell on the open world market. The United States currently imports over 65 percent of its daily transportation oil and fuels from overseas which makes this country extremely vulnerable to any supply crunch. We live in the best of times...

[Edward]

Andy, the reason gasoline prices in some oil producing countries is substantially less is that their governments subsidize the costs to fortify political power. Oil company stocks are publicly traded and profit margins are publicly published. Wipe away the 8-10% profit and gas would still be around $3/gal.

[Jeff]

Quit whining about high gas prices and do something about it. Dump your gas guzzler and buy a car that gets at least 25 mpg on average. If people would wise up and start buying cars based on common sense instead of vanity, gas prices would come down. And regardless of what others do, you'll be spending less for gas.

If you're driving an SUV or monster truck and the only thing you haul is yourself and maybe one or two others, then people like you a big part of the problem. Wise up and quit hogging the gas!

[Brad]

Folks the reason gas is high is simple. Supply and Demand. I think if you google or wiki for "Peak Oil" it will shed light on the future of Oil. Essentially demand has permanently outstripped our current production supply and new oil discoveries have no chance in filling the void. I am not saying the oil economy will come to a screeching halt in the next ten years, but there are estimates that the world will run out in the less than 50 years. Oil will continue to increase in price. If you are buying a new car or truck right now think about what it will be like to pay $5 or more for a gallon of gas in a year or two.

[lightbulb]

ok im doing this for a project and i need to know why exactly gasoline prices are so high these days. can anybody help me out?

[Jim Blasius]

Are you serious? You can't tell me that not one single person has come up with an idea to make v-8's get 50 mpg. V-6's 75 mpg and 4 cylinders get 100 mpg Yes, someone has. But the rights are immediately bought up by the oil companies for a couple of million. Which is a lot of money to the average American. The combustible motor has been around for a century and we are still getting the same mileage. If you even look at the hybrid cars, they should be getting 100 mpg. Unfortunately, we have become dependent on vehicles to get us around. I wouldn't mind paying $3 a gallon if my van got 50 mpg but, it only gets 8 mpg. Because of the high prices I only drive the van when necessary. In the 1950's the same thing was done. The difference was that everyone banded together and stopped using their vehicles. Guess what? About 1 month later gas prices dropped back down. Too bad we could't learn to live without our vehicles or press our government to get better gas mileage. Wouldn't it be a wonderful life? The technology for better mileage has been around since the 1950's. Come on America! Remember, this is supposed to be the land of the free not the oppressed!

[lou]

if gas prices keep rising, soon the average worker making minimum wage won't be able to get to work after bills are paid or maybe just might have to find a job nearby. We hear about tax cuts and federal aid for the housing industry, how about supply more gas from local resources instead of having it imported

[tim]

What do they exspect the Middle class families to do. When they have to foreclose on their home, to feed their family. Well-fare is probably going to increase. People are just going to quit!!!!! Freedom was is it, can't somebody define it for me.

[Vincent DeTolla]

Let's keep this simple. Oil is a manipulated product - Whatever you want to call it - Monopoly, Cartel. Nothing really complicated - it is what it is.
This will not change unless the international community has had enough, but I assure you just before that moment prices will stabilize and maybe retreat a little. Give it about 6 months - 8 months.

[Stan]

Some of the reason gas prices are high is because of the poor exchange rate of the U.S. Dollar. This can be seen by the fact that gas prices haven't gone up all that much in Europe.
I only use our car for food shopping or family outings. The rest of the time I ride a scooter that gets at least 75 mpg. I commute to work with it rather than take the NYC subway.

[Neal]

Hey Arthur had a great idea about a year ago: where's the review on motor scooters?! We all want to get 75 mpg+ like Stan (above)!