Pain at the pump—Why are gas prices so high?

Historically, autumn is a time of falling leaves, falling temperatures, and falling gas prices.  This year, however, expect only two out of three.  Gas prices typically decline after a high summer travel season, but this year they are on the rise and are expected to increase even more as the holiday season approaches. (See our U.S. gas prices blog, for the weekly gas prices in your region.)

A major reason for the high price at the pump is the high cost of crude oil, which is now over $95 a barrel. There are a number of factors for the surge in crude oil prices. World oil demand has continued to grow much faster than oil supply outside of the Organization of the Petroleum Exporting Countries (OPEC), according to the Energy Information Administration (EIA). This puts pressure on OPEC and inventories to bridge the gap. Other factors cited by a recent EIA report include geopolitical instability, reduced commercial inventories, and worldwide refining bottlenecks that reduce the industries ability to accommodate refinery outages. In addition, a weak U.S. dollar has fostered continued oil consumption in foreign countries, since oil is traded in dollars. The rise in oil cost therefore is less in many other countries than in the United States. All these factors combined with bad weather forecasts in a few oil regions such as the Gulf of Mexico have contributed to the rise in prices.

Despite higher oil and gas prices, total U.S. petroleum consumption is expected to increase by 0.5 percent in 2007 and 1.0 percent in 2008. Economic growth combined with forecasted colder average temperatures this winter may push demand higher and prices will likely follow.

All this is bad timing for consumers. An increase in gas prices will most likely affect retail spending, according to a recent New York Times article. Consumers are already feeling the pinch at the pump and that will affect their wallet as we embark on holiday shopping.

So, how will the increase in oil and gas prices affect you this season? And how will you compensate for the hit on the household budget? Feel free to post a comment in this blog.

For information and tips on saving fuel and alternative fuels see our fuel economy guide.

—Liza Barth

Comments

[NC Consumer]

I've been told it takes quite a while for the oil purchased today to be refined into gasoline that is usable. If this is true then why do gas prices go up immediately after the price of oil goes up? It sounds like price-fixing across the entire industry and consumers are the ones who hurt from it.

[NY Consumer]

Good point NC Consumer. I was wondering the same thing about the "expected" weather problems in the Gulf, somehow having an effect on the supply and demand (and cost) of oil now.

To be quirky and beside-the-point (like the news usually is): this news sounds fishy.

[nickc]

hey guys, maybe this article will explain some things.