Why Is Gas So Expensive Lately? You and your pockets have likely noticed the massive increase in gas prices. But why is it happening? Read on to learn more.
By David James
Whether you commute daily or work from home, there's no doubt you've noticed skyrocketing gas prices. But how did this happen, and will gas prices return to normal anytime soon?
Some place the blame on inflation, while others focus on the relationship between gas and Russia's invasion of Ukraine. Others still look to the record profits oil companies are enjoying with suspicions of price gouging.
Related: What the Invasion of Ukraine Really Means for Business
The answers to these questions are layered, so keep reading for more on why gas has been so expensive lately.
Why do gas prices fluctuate?
A mathematical explanation
When it comes to the price of gasoline, there is a tried and true equation you can count on to evaluate how gas prices are determined:
Crude Oil + Refining Process + Retail Sales/Distribution + Taxes = Gas Price
However, the equation is slightly more complicated than simple addition. Each of those factors is ever-fluctuating and has a different weight in determining the outcome.
The equation's components break down to:
- Crude oil = 69%
- Refining process = 6%
- Retail sales/distribution = 10%
- Federal and state taxes = 15%
While the equation is there to help determine prices, it can't automatically predict what gas prices will be. Oil production is volatile because so many, often unpredictable, factors are involved.
Supply and demand
Like any other significant resource, supply and demand are the main cost of price fluctuation. Crude oil prices are based on the demand for gas and petroleum products in the United States.
When the supply of gasoline decreases, the price increases; suppliers know that gas is a crucial resource, so they can often set their price and apply financial pressure when there are problems with their supply chain.
Seasonal changes
Spring and summer mark road trip season. While road trips are a fun way to spend your time, they also increase the gasoline demand.
This drives retail gasoline prices up. In fact, since 2000, gas prices in August have been 32 cents higher per gallon than gas prices in January. So next time you're ready for a summer road trip, know that it might cost you more than a winter getaway.
What's more, regulations and formulas for gasoline change with the seasons. Gas sold in the summer has different environmental regulations than gas sold in the winter because summertime gasoline is made to be less prone to evaporation.
Because of this, oil refiners are required to use more expensive gasoline components that will not evaporate in winter conditions.
Related: You Should Know: Why Does Gas Cost So Much? - Fuel Efficient Vehicles
When did gas prices start to rise?
Post-pandemic prices
Average gas prices have skyrocketed in the aftermath of the pandemic. Because so much of the population remained in lockdowns, it drove down the demand for gas. During the pandemic, gas prices dropped to as low as $1.80.
However, national average prices have recently risen as high as $5.00. Why? The world opened back up.
Now that vaccines are readily available and immunity to COVID-19 has grown stronger, much of the country is back to business. While it's nice to see life returning to normal, it does mean that gasoline demand is affecting prices significantly.
World conflict
The Russian invasion of Ukraine has also contributed to rising gasoline prices. Russia is one of the world's largest oil producers, so the sanctions levied by the United States and its allies — in response to the war — have contributed to the rise in prices.
In solidarity with European countries, the U.S. committed to not participate in subsidizing Russia's war in Ukraine and, therefore, sanctioned all Russian oil and supplies, leading to a supply shortage.
Record-high gas prices are not just an American issue. Countries worldwide are experiencing fuel prices soaring for the same reasons.
Take a look at a few countries with comparable costs per gallon of gas (shown in USD):
- France: $8.11
- Berlin: $7.46
- South Korea: $6.33
- United Arab Emirates: $4.15
- South Africa: $5.61
Related: Where Are Gas Prices the Highest?
Natural disasters
In 2021, Hurricane Ida hit the Gulf of Mexico. At least nine federally administered production areas were completely shut down, and 96% of crude oil production and 94% of natural gas production were halted.
The hurricane delayed production immensely, and some refineries did not reopen until September this year. The setback greatly affected the supply chain, another reason people's pockets feel the effects of higher gas prices.
Will gas prices lower?
There is no telling. Some analysts think it might be a while before the price of gas lowers for good. Other analysts say it's up to drivers to control demand. However, AAA reports some good news for the time being: the national average is down to $3.80 for regular gas.
How can you save money on gas?
With so many factors affecting the cost of gas, it's rather unpredictable. To combat this, consider these tips and tricks to save on gas.
1. Gas apps
Instead of hoping your local gas station has the lowest prices, shop around for an extra minute or two. Even if you have to go an extra mile, it might be worth it if you can save 10 cents a gallon.
GasBuddy is an app that allows you to plug in your location to compare gas prices. Google Maps will also often provide prices based on your location when available.
Related: 4 Money-Saving Apps for Today's On-the-Go Entrepreneur
2. Gas rewards
Many gas stations have rewards that provide discounts by the gallon, redeemable points, and significant savings.
3. Grocery store rewards
Many nationwide grocery stores have a fuel points program. Depending on your region, you may have Kroger, Ralphs, or Fred Meyer stores near you.
You'll get an equal amount of fuel points for every dollar you spend. Their fuel points program does not have a limit, so if you drive a ton, you may save a ton — just make sure you spend them before the end of the month.
4. Credit card rewards
Many credit cards offer options for rewards at the pump. If you know you are putting in maximum miles, opening a credit card that works for you could be a huge benefit.
5. Bet on mondays
GasBuddy's research shows that prices are lowest on Mondays. Why? Remember supply and demand. Many people fill up on Fridays, Saturdays, and Sundays as part of their weekend errands, which drives up supply. If you can make it through the weekend, Monday is a must for fill-up days.
What should you do about high gas prices?
With international turmoil, natural disasters, and issues with the supply chain, gas will continue to fluctuate.
Your best bet is to stock up on those fuel points, take advantage of any state tax relief, and use gas apps to find you the best deal at the pump.
For more articles on the topics that matter when it comes to you and your business, explore the rest of Entrepreneur's articles here.
