What Makes Gas Prices Rise So High?:
The main reason for high gas prices are high crude oil prices. Oil prices rise when demand is greater than supply. In the summer of 2008, however, gas prices rose to $145 a barrel, even though demand and supply were fairly constant. Commodities traders, who were speculating in oil futures contracts, were the main reason oil prices, and gas prices, rose so high.In summer 2009, gas prices again rose,driven by high oil prices. This was despite a recession, which decreased demand. Commodities traders were again the reason.
How High Oil Prices Make High Gas Prices:
Crude oil accounts for 55% of the price of gasoline, while distribution and taxes influence the remaining 45%. Usually, distribution and taxes are stable, so that the daily change in the price of gasoline accurately reflects oil price fluctuations. Occasionally, however, distribution lines are disrupted or are down for maintenance, which can sometimes make high gas prices even when oil prices are down.What Has Caused Recent High Oil Prices?:
Oil prices usually rise during the summer vacation season. Oil prices rise higher when there is concern about surging demand from China and India, and a curtailment of oil supply from Nigeria and Iraq. Once oil prices start to rise, commodities traders bid them even higher, causing a price bubble.Another reason for high oil prices is the declining dollar. Since oil is denominated in dollars, the 40% decline in the dollar in the last six years puts upward pressure on oil prices. (Source: BBC, Oil Price May Hit $200 a Barrel, May 7, 2008)
What Is the Biggest Factor in High Oil Prices?:
Like most of the things you buy, oil prices are affected by supply and demand. However, oil prices are also affected by oil price futures, which are traded on the commodities futures exchange. These prices fluctuate daily, depending on what investors think the price of oil will be in the future. When traders think oil will be high, they bid it up even higher. This soon causes high gas prices.Sometimes commodities traders drive up the price of oil, even when supply increases and demand falls. The EIA cites an increased flow of investment money into commodities markets. In other words, money that used to be invested in real estate or the global stock markets is now being invested in oil futures. (Source: EIA Short-Term Energy Outlook)
What Makes High Gas Prices Go Down?:
The summertime vacation driving season usually increases gas prices by an average of ten cents per gallon. This price increase is despite the increased use of ethanol. Commodities trading will drive oil and gas prices up even higher.Gas prices usually go down in the winter, since transportation needs are lower. This even offsets an increase in oil usage for winter heating in the Northeast U.S. When traders expect oil prices to decline, they stop bidding as much. This drives oil down even further. Gas prices decline as a result.
What Can We Do About High Gas Prices?:
The most immediate thing we can do is reduce our usage of gas, either through driving less or increasing fuel efficiency. Surprisingly, the best way to increase fuel efficiency is to keep tires inflated. These, and other suggestions, are included in the "Related Reading" section of this article.Longer term, we can change our need for oil and gas by switching to alternative fuel vehicles, using public transit and moving closer to work to reduce commuting time. This will reduce the impact of gas prices on each of us individually by reducing use.
Could this reduction in itself reduce gas prices? It could, if it could reduce demand for oil enough to lower oil prices. It would have to happen on a sustained basis over a long period of time. That's because gasoline accounts for only 20% of each barrel of oil. Oil companies would still profit from the non-gasoline parts of their business. Therefore, even if consumers could conceivably stop 100% of gasoline use, oil prices might only decline 20%.
Furthermore, other pressures on the price of oil, such as dollar decline and commodities traders, would not be impacted by a gasoline boycott.
Could a gasoline boycott force gas prices down even if oil prices stayed high? Probably not by much. That's because the other elements of gas prices would take a long time to change. Taxes, which comprise 19% of gas prices, would require legislative approval, which could take months. Refinery costs (also 19%) couldn't be lowered, and neither could distribution costs (9%), both of which are fixed. (Source: EIA, A Primer on Gas Prices)
A boycott of one brand of gas could actually increase prices, since there would be fewer gas outlets. Those companies that were boycotted would simply sell their gas to those that weren't boycotted, defeating the purpose.
The only real way to lower gas prices is to lower demand for gas and oil over a long period of time. This would work, since the U.S. consumes 25% of the world's oil. This has increased over the last 20 years, from 15 million barrels per day (bpd) to 20.7 million bpd. A concerted effort might convince commodities traders, who have driven up oil prices 25% in the first quarter of 2008, that oil was a bad investment, thus allowing oil prices to return to pre-bubble levels.
