Why Are Gas Prices So High?

Gas prices have been so high over the past few months. The condition now is even worse. Most people are aware of this.

The unfortunate thing is, when gas prices go up, the cost of transportation goes up and that leads to an increase in the rise of all commodities. Be it bread, construction materials or even diapers.

In June 2022, the average price of a gallon of gas in the U.S. is $5. Drivers continue to experience pain at the pump every time they go to fill up their tanks.

With inflation hitting a record high of about 9% in the U.S., gas prices are at levels that have rarely been witnessed in the past 50 years. Even during the energy crisis in the late 1970s, the situation was not as dire as it is now.

Again, you may ask, why are gas prices so high? Keep reading to find out.

Key Takeaways

The main factors contributing to the high gas prices are crude oil prices, and trading activity in the global market for oil and petroleum products
The Russia-Ukraine war and the high inflation rate in the US, now at about 9%, have also driven up the cost of gasoline prices.
Increased travel in 2022 and the summer season have led to an increased demand for gas.

Disclaimer

The contents of this article are for educational purposes only. They are not intended to be a source of professional financial advice. You will find experts on financial planning and financial management here. More on disclaimers here.

What Actually Determines The Price Of Gas

In comparison to last year, 2021 at a similar time, gas prices in the U.S. have risen by about 50%. Is the president to blame, or is it the pandemic, or the rising rate of inflation?

Here are the main factors that contribute to the cost of gas.

Crude oil Prices

The sharp spike in gas prices is as a result of the increase in crude oil prices. According to the Energy Information Administration, the cost of crude oil, the raw material that generates gasoline accounts for 60 percent of the price of a gallon of regular gas.

In 2021, it accounted for 52% and in April 2020, 25% - which was as a result of the pandemic. The decline in demand for fuel was caused by the lockdowns.

In 2021, the cost of a barrel of crude oil was about $70. In 2022, the cost has gone up to approximately $120 a barrel. High inflation and the Russia-Ukraine war are a ong the factors that have contributed to this.

Trading

The price that you end up paying for gas is heavily influenced by the trading activity that happens in the global market for oil and petroleum products. The global economy is run by the principle of supply and demand and when that equilibrium is disrupted, costs either increase or reduce.

Inflation

The high inflation rate in the U.S. which is now at about 9% has driven up the cost of gas prices. With more demand than supply, consumers have had to dig deeper in their pockets to afford a gallon of gas.

Russia-Ukraine War

Even before Russia invaded Ukraine, gas prices were still going up. However, the invasion has worsened the situation because of sanctions imposed by the European Union, United States and other major economies around the world. Keep in mind, Russia is one of the biggest oil exporters in the world.

Before the country invaded Ukraine in February, roughly half of Russia’s oil exports went to Europe, representing $10 billion in transactions a month. Last year, about 8 percent of U.S. crude oil imports came from Russia.

Since the beginning of the Ukraine war, Russia has been selling less oil in part because of sanctions imposed by the European Union, United States and other major economies. That has reduced global oil supply and led to a jump in prices.

Increased Travel

When the COVID-19 pandemic hit in 2020, for a period of time the cost of a barrel of oil dropped below zero and the storage tanks were completely full, due to low demand. This was caused by lockdowns that were imposed by governments.

In 2022, commuters and other travelers are back on the road and this has led to an increased demand for gas. It being the summer season now also doesn't help much as a lot of people are traveling for their vacations. It is projected by analysts that gas prices will hit $6+ starting August 2022.

For some, this will disrupt their summer plans. Others will start stacking up their money early so that they are able to afford such plans.

Oil Refineries

Another factor that's driving the cost of gas up in the U.S. is the crude oil refining process. In the past few years refineries have shut down faster than new ones that are being built. That means that the existing oil companies, which are working at nearly full capacity, have lower capacity to refine gasoline that will meet the demand in the market.

Has The Government Done Anything To Reduce Gas Prices?

This is actually a very great question.

There are some things that the government has done, and there are other things that are still in the works.

Let's have a look at the remedies that have been implemented.

Gas Stimulus Stimulus and Rebate Check Programs

As one of the ongoing ways to help Americans deal with higher gas prices as a result of the pandemic and the war in Ukraine, 14 states have approved legislation to get tax rebates for their residents.

These States include California, Colorado, Delaware, Georgia, Hawaii, Idaho, Illinois, Indiana, Maine, New Jersey, New Mexico, Minnesota, South Carolina and Virginia.

Emergency Oil Reserve

In November 2021, President Biden instructed the Department of Energy to release 50 million barrels of oil from the Strategic Petroleum Reserve (the U.S. emergency stash of underground gasoline) to ease gas prices. This did not help much as gas prices continue to go up.

In March 2022, the president again announced that 1 million barrels would be released per day, for 6 months from the Strategic Petroleum Reserve.

These gas rewards programs have not had a significant impact on prices. With the sky high gas prices, Americans will have to continue to dig deeper in their pockets as it is not yet clear whether there will be lower gas prices in the near future.

Are There Ways That I Can Save Money On Gas?

Yes there are!

Here are 5 great ways that you can do it effectively.

1. Use gas apps to find cheaper gas near you

You don't need to walk around every fueling station in search of a good deal. Just use apps like GasBuddy, Gas Guru and Waze to find the cheapest gas prices near you in real time.

2. Join and make use of gas reward and cash-back programs

If you already have a preferred place(s) where you like to shop or refill your gas, sign up for gas reward or cash-back programs there.

These programs will provide discounts for returning customers each time they refill their gas.

3. Limit your number of trips

Do you have errands that you can combine and tackle in one day? If yes, do that to save yourself some time and gas money.

4. Carpool with other people

If you can carpool with your friends while going to work, or the office or while dropping the kids off to school everyday, do that. It will save you some coins at the end of the day.

5. Rework Your Budget

Many of us have had to change up and tighten our budgets due to the high cost of living at the moment. Is it fun, no. But is it necessary, yes.

Whether it means reducing your wants or getting rid of some unnecessary items on your budget, do that until you feel like you have a solid budget that works for you.

Conclusion

Living within your means during these tough economic times can go a long way in helping you make the best use of the resources that you have. If you would like to work with one of our qualified financial advisors in managing your finances, get in touch with us here.

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