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Gas is a critical element in any society, from transporting goods to getting people to their jobs and families to activities, gas keeps countries moving. With the rise of electric vehicles you might have expected the price of gas to drop rapidly, however macro events happening globally are impacting the price of gas and causing concern at the pump for some. There are many factors that drive the price of gas, and a few tricks possible to save for filling your vehicle.
Understanding Why Gas Prices Are High
How Are Gas Prices Determined?
There are a variety of factors which play into the price of gas at the pump. There are four main items to highlight as drivers of prices at the pump; the price of crude oil, refining costs, distribution costs, and taxes.
Why Are Gas Prices So High Around the World?
Countries around the world need gas to keep their cars and economies moving. With limited supplies and various demands for the resource prices tend to fluctuate. Combine this with political pressure and concentrated control of resources and you can start to paint the picture of gas prices fluctuating rapidly around the world.
Why Is Gas So Expensive Lately?
There are various global impacts that impact the price of gas. Some examples in recent history include the Russian invasion of Ukraine, hurricane Ida, and The Organization of the Petroleum Exporting Countries, or OPEC, cutting production. All of these have had negative impacts on the price of gas globally.
When Did Gas Prices Start to Rise?
From roughly 2012 through 2020 the price of gas in the United states trended in a decreasing trend. Some time in early 2020 the United states experienced a sharp increase in the price of gas fueled by things like war and pandemic. While the price did come down late 2022, gas as of q2 2023, is on the rise again.
How Much Tax Do We Pay on a Gallon of Fuel?
The amount of tax paid on a gallon of gas will vary from state to state in the United States with some states such as Arizona paying $0.18 per gallon versus California paying $0.51 per gallon. Taxes also apply at the federal level and sales tax level and can add up quickly to tax bills over $0.70 per gallon of gas purchased.
Why Gas Prices Fluctuate
Who Controls the Price of Gas?
Oil is traded as a commodity and is subject to great influence by OPEC and oil companies. The primary suppliers of oil, the refineries who convert it to gas, and the distribution of this resource all dictate the supply side of the equation.
However, it is primarily market forces that determine the price of gas. The more people are willing to spend before demand is met, the faster prices will change, finding an equilibrium.
Why Do Oil Prices Change So Much?
Changes in demand, supply, securities such as futures, seasonality and transportation all dictate the price of oil. Because each of these variables is subject to controllable and uncontrollable events, and the global environment they change on, oil is subject to changes in prices often.
Why Is the Price of Gas Going Up?
At its core, in recent periods the supply of gas has decreased, meaning there is less gas available to circulate in the global economy. Given this decrease, the price has increased to meet supply at a higher price point.
What Will Cause the Price of Gas to Go Down?
Decreasing gas prices can be impacted by many factors including alternative energy sources availability, more supply of gas coming into circulation, or subsidies by governments along the supply chains of the gas production process.
Why Do Gas Prices Differ Between States?
Gas prices differ by states given the accessibility to where gas is manufactured and local and state taxation. If a state, such as Texas, houses the refineries where gas is produced, the transportation cost to local cities is much lower than a state which receives gas by pipeline, which may influence price.
Why Is Gas More Expensive in the Summer?
Gas stations sell both winter grade fuel and summer grade fuels. Summer grade fuel is more environmentally friendly and is aimed at reducing ozone during this critical time of year. This fuel is more expensive to customers versus winter fuels.
The Role of Market Speculation in Driving Up Gas Prices
Investors are able to speculate on the future prices of gas, and buy securities which can translate to profits if correct. When investors purchase such securities speculating that the price will increase in the future, the price of oil can be impacted in the present, driving the price per barrel up.
High Gas Prices and Profits
Where Does the Money We Spend on Gas Go?
There are four places money may go when we purchase a gallon of gasoline
- The oil companies - those who produce and sell gas to gas stations
- The government - taxes at the local, state, and federal level where applicable
- Gas stations - those who distribute the gas for individuals
- Distributors and suppliers - those who store, transport and deliver gas from one place to another
Who Benefits from Higher Gas Prices?
When the price of gas increases there are a few winners. Oil companies being the most obvious that their product is being sold at the same quantity for a similar volume. We also see countries who export oil benefiting from their commodity increasing in price.
Less thought of would be alternative energy companies actually benefiting from an increase as well. These companies may benefit from customers seeking alternatives to the rising prices of gas.
Who Doesn’t Benefit from Higher Gas Prices?
When gas prices increase gas stations are hit hardest, having to take a smaller profit margin relative to the price of fuel sold. The same goes for consumers who will now pay more for the same quantity of product they were previously receiving.
High Gas Prices in the United States
Why Are Gas Prices in the U.S. So High?
There are many reasons why prices in the United States are so high. The US only has a limited capacity which refineries can produce at, creating a maximum supply before having to rely on imports to fulfill demand. This can create fluctuating prices.
What States Have the Highest Gas Prices?
Impacted by taxes and accessibility, Hawaii and California have the highest gas prices in the United States
What States Have the Lowest Gas Prices?
Georgia was found to have the lowest gas prices in the United States, and most of the south has seen the largest decreases in price over time.
Has the U.S. Stopped Producing Oil?
The US continues to operate refineries within the United States in places like Chicago and Corpus Cristi. While levels of production have decreased since COVID, levels are slowly increasing once more.
Why Does the U.S. Both Export and Import Oil?
The type of oil is what drives both imports and exports of oil. The US relies on sweet crude oil, a type of oil found in Canada, but is able to extract heavy oil, a commodity which can be exported.
What Can the U.S. Do to Make Gas Cheaper?
In theory the US could increase the supply by drilling more into earth to search for oil, subsidize the pump by decreasing taxes, or even calling for geopolitical action to decrease prices of imports. These actions have broad implications and cannot be handled lightly.
How to Save Money on High Gas Prices
While the price of oil changes there are a few things consumers can do to save on the cost of gas for their personal vehicles.
Check Gas Apps to Find Low Prices
Many apps like GasBuddy can help consumers find the cheapest price per gallon in their proximity, which can change by the hour.
Enroll in Gas Rewards Programs
Some gas stations have rewards such as getting $0.10 off each gallon for every $100 spent (as an example). Enrolling in these programs can save you at the pump in the future.
Accrue Gas Points at Grocery Stores
Some grocery stores offer gas as an option as well, such as Costco, H.E.B., and Kroger. By shopping in stores for groceries, you may qualify for reward points, which can be spent at the pump.
Purchase Gas with a Rewards Credit Card
Some credit cards may offer cash back, such as 5% on gas purchases. Combining this with other mechanisms to save, you can quickly see how it is possible to save anywhere from $0.05 to $1.00 per gallon of gas purchased.
Drive Slower to Reduce Gas Consumption
Besides saving on the purchasing of gas, driving carefully can also save you on consumption. Avoiding rapid acceleration, or frequent stop and go traffic can reduce your gas usage, stretching the gallons further.
Opt for Fuel-Efficient Vehicles
Considering a new vehicle can also have a great impact on how much gas you will need to purchase. There have been many improvements in engines, with some cars averaging over 40 miles per gallon. Consider this when thinking about your next purchase, maybe estimate your annual fuel cost as well.
Carpool or Combine Car Trips
Reducing your reliance on your car is also a way to save. If possible, carpool or use your car to make many stops on the same trip to reduce the number of total trips your car is making.
Monitor Your Tire Pressure
Driving on the manufacturer recommended tire pressure will ensure that your car is getting the fuel efficiency desired. IF your car is running low on pressure, you may be increasing drag, meaning more effort for your car, and its engine, to get you to the speed you want to go. This all consumes more fuel than necessary.
Clean Out Your Car to Improve Efficiency
Even the small improvements help. The less weight that's in your vehicle, the less fuel it will need to burn to perform how you intend. If you have extra weight in your car, think about the fuel efficiency you could gain by ditching those items.
Gas is an everyday part of people's lives, and there's a lot we can do to be more efficient. Prices at the pump are subject to many factors which individuals may not be able to control, however understanding what drives prices, and understanding what you can control to decrease the price and reliance on gas can go a long way for your pockets. As technology advances and alternative fuels come to market, there may be a day where gas is not as relied upon, but until then be sure to be diligent and ensure you’re doing what you can to get the best price for your gas.