USAinDebt

$1.59 was the price per gallon of gasoline back in 1970s. This year however, this precious liquid approached and quickly surpassed the $3 per-gal mark.

What causes gasoline prices to soar? There are multiple reasons for that. Typically, rising costs are common for the summer, because a lot of people are going on vacation and more driving is involved. Holidays, such as Thanksgiving are also a precondition for a higher demand and respectively higher price. Major disasters, such as hurricanes can also be “helpful” (for example, when hurricane Katrina hit, refineries went out of order, causing a spike in prices due to higher demand and lower supply). The cost of crude oil, refinery processing costs, marketing and distribution costs, and taxes are directly reflecting on what the consumers pay at the pump. Some states such as California and Chicago require clean-burning fuel which can only be supplied from certain refineries, once again resulting in elevated prices.

What do we pay for when we gas up? The price tag can be broken down by mainly 4 categories: cost of crude oil, Federal and State taxes, refining costs, distribution and marketing. About half of your money goes towards paying the price for crude oil. Federal & State taxes bite out around 16%; refining costs another 30% followed by marketing & distribution costs (~10%).

So will the prices ever go down or one day we will have to ride bicycles? Looking at the history of gasoline pricing for the past decade, the answer is “most likely not”. Prices could drop for a while, but every time when they rise, a new peak is reached. Slowly but surely gasoline costs are becoming higher and higher. More and more vehicles hit the roads each year, raising the demand. Thankfully, many manufacturers have started exploring new ways by rolling out reduced consumption vehicles. Bioconversion technologies that produce biodiesel and biogasoline already proved to lower gasoline demand. Hybrid and electrical cars are advertised more and many customers are now choosing to pay more for their new car, but save in the long run, at the gas pump.

Tags: gas | gasoline | oil | price | pump | katrina | hybrid | biodiesel | biogasoline