Gas Price

2 Pages 568 Words

Why Are Gas Prices So High?

Have you ever wondered why the gas prices around the Miami Valley and the nation so high? Do you guess it is just the gas companies’ way of making lots of money? How much does of a roll does the government plan in the prices? I am here to answer some of these if not all of these questions.

One of the main reasons that gas prices are so high is because of the cost of the crude oil. Crude oil cost is the price paid for a barrel of crude oil on the international market divided by 42 gallons in a barrel. This will give the price of crude per each gallon of gasoline. This is often the most volatile price of the fuel. Crude is trade as a commodity, and as the price goes up, prices for gasoline can change very quickly. When prices for crude come down, the price for gasoline also comes down -- but very slowly. This is typical for most commodities.

For every one dollar increase of the cost of a barrel of crude oil, there is an increase of about 2.5-cents per gallon of gasoline. So, a $10 increase per barrel in crude prices means a 25-cent increase at the pump. A $15 increase in crude oil means a 37.5-cent a gallon increase in gasoline prices. This additional cost will not go away until crude oil prices start to come down. (1)

Now with that said do you believe that the companies are just trying to make a lot of money? Gas prices are established primarily through two key factors: cost and competition. In terms of cost (what the gasoline station has to pay for a gallon of gasoline), the cost per gallon changes often - sometimes on a daily basis. Factors determining the cost per gallon of gasoline include issues such as supply/demand, clean-air regulations, and world events. Competition (other gasoline stations) is the other key factor in determining the retail price (what the consumer pays) for a gallon of gasoline. It should be noted that a significant portion (exact percent varies by state...