The cost of a gallon of gasoline has risen fast this month. In 10 days, it rose $.25. It’s now about $3.50 a gallon near us and experts expect it to go higher.
I don’t know all the ins and outs of what determines the cost of gasoline, but it seems to me this is going to hurt our economy even more. I try to look at this from an economical, logical view-point instead of emotionally and how hard it is hitting my pocketbook.
Part of the cost of gasoline is the cost of the crude oil that gets refined into gasoline. This has sky rocketed from about $85 a barrel at the end of February to almost $105 today. A lot of blame has been placed on the unrest in Libya, but Libya only provides about 2% of the world’s oil, and the U.S. doesn’t import any oil from Libya at all. But this is not the only thing affecting the price of a barrel of oil.
Supply and demand. I remember this concept from my economics classes in college. The more demand, the less supply, the higher the price. Demand for oil is certainly affecting the price. The world is using more and more oil. Production of oil has not kept up with this demand, whether by choice or not. Hence, higher prices.
The higher the price for the oil, the higher delivery costs, not only for the oil, but also for the gasoline derived from it. Those that deliver are having to pay higher prices for the fuel used to deliver the fuel. Now that’s a vicious cycle!
Weather (hurricanes in the vicinity off shore drilling) and other production events such as the explosion on the oil platform in the Gulf of Mexico affect the price of oil. There are many other things that also affect the cost of oil.
For the gasoline itself, demand often has a big impact on the cost. Right now, the demand is low. Will it remain low because of the prices? As we get closer to summer here in the U.S., when a lot of people do more driving, will demand rise taking the priced even higher? I cannot imagine what the price of gas will be by July.
We do not have enough refining capability here is the States to keep up with demand. We actually have less refinery facilities, with less capacity, than we had in 1982. There is such a low profit margin on oil refineries that most companies are reluctant to build new ones.
All of this has led to the prices we are seeing at the gas pumps today. I know we still pay a lot less for a gallon of gasoline than people do in other countries, but I’m glad that I do not have a commute for a few weeks. I filled up the tiny, little gas tank on my tiny, little pick-up truck yesterday, and it cost over $45! I’m going to make that tank last for a while.