Once again the threat of record gasoline prices looms heavy on the economic horizon. Consumers seem helpless in the face of a major impact on the family budget. Gasoline prices weren’t always so volatile, but the world has changed — the main problem in global industrialization.
Factors that Determine the Price of Gasoline
About 65% of the price of gasoline is determined by the cost of crude oil. Gasoline prices are increased by production and refining costs, as well as state and federal taxes which add an average about $.50 per gallon depending on the state.
The unfortunate fact is that the cost of crude oil can vary widely due to speculation. There are no bargains in the world of crude. Crude oil prices are determined by commodities trading which are subject to speculation about world events and future demand.
The Middle East has 55% of the world’s oil reserves. Unfortunately the region is known for political instability and a source of uncertainty about oil available to the world. This instability drives the price of oil up.
The valuation of the U.S. dollar compared to foreign currencies changes daily. These changes in value affect the amount of oil that can be purchased with dollars.
Misunderstandings about Gasoline Prices
One of the most common misunderstandings about gasoline prices in the U.S. is the role of the federal government in controlling prices. The main direct influence of the government on gasoline prices is in the form of federal gasoline taxes which have been 18.4 cents a gallon since 1993. Most of that money is used for construction and improvement of highways. Typically, the federal gas tax cost American drivers slightly more than $8 a month — state gasoline taxes are typically much higher than federal taxes.
For the first time in over 60 years the U.S. exports more oil than it imports. Even though U.S. production has increased significantly for the past three years, it is still about 40% less than peak production of 1970. Still, slightly less than half of U.S. oil must be imported. The country is far short of energy independence. The country’s increased production is largely due to improved recovery methods rather than new crude oil discoveries..
The oil industry exists for profit, and gasoline prices not controlled by the government, but by commodities contracts. Many Americans believe that vast amounts of oil exist within the country’s borders, and are demanding an increase in drilling. The truth seems to be found in the decreasing numbers of major discoveries around the globe. Also, even with increased production the demand for crude continues to grow.
Many people point to offshore drilling as a solution pointing to the Gulf of Mexico as an example. Perhaps more oil will be discovered offshore, but drilling in the ocean makes oil more expensive. Besides, the total oil removed from the Gulf of Mexico in American waters accounts for only about 4% of U.S. oil production.
Global Industrialization has Increased World Demand for Oil
There was a time decades ago when the United States was far ahead of any other nation in manufacturing and industrialization, but that has changed. Globally other countries have stepped up efforts to modernize. The demand for oil in what are commonly called “emerging markets” has increased world demand for oil — particularly in China and India — China alone is responsible for about 40% of the global increase in demand.
As the need for oil increases globally, speculation increases driving the price higher. There is a dominant world opinion that peak oil discovery has either been reached or will be reached soon. This belief also drives speculation.
Individuals can Reduce what they Spend for Gasoline
Drivers waste lots of gasoline by driving improperly, poor car maintenance, and owning cars that use too much fuel. By improving driving habits individuals can save over 20%. Bad driving habits include rapid acceleration — especially from a stopped position — and driving too fast.
Easy maintenance tips include proper tire inflation and tune-ups which can save 3% to over 25%. The number of cars that get over 30 miles per gallon is steadily increasing.
If all Americans would make an effort to get better mileage, the national demand would decrease and perhaps decrease the cost of gasoline through the principle of supply and demand.
The cost of gasoline has shown a consistent trend to increase for several decades. The U.S. has enjoyed better prices than most of the industrialized nations for many years, but that is coming to an end as the competition for existing oil supplies increases. The federal government is basically helpless to lower gas prices, but there are options for some who want to decrease gasoline expenses by increasing gasoline mileage.
Sources:
- "Increasing Gas Prices and Gas History,"zfacts.com. (Accessed: February 21, 2012)
- "Rising Gasoline Prices Reignite Commodities Speculation Debate," www.ogj.com. (Accessed: February 21, 2012)
Harvey Craft - I am a retired educator with diverse experience. I read anything science, education, and history. I write to share what I learn.
