Gas Prices

The simplest way to explain what causes gas prices to rise is the fundamental economic principle of supply and demand. The lower the amount of a supply of something there is, the higher the demand for it. And conversely, the higher the amount of a supply you have for something the less of a demand there will be for it. Basically the less of something there is, there more people are willing to pay for it. This principle of supply and demand is influenced by many factors, which in turn, determines how much we pay for a gallon of gas at the pump.

The current global demand for oil is at its highest point in history, and will only continue to rise. While much of the world has been in a recession during the past few years, including the United States, newly industrializing countries such as China and India have been booming with economic growth. With booming economic growth comes a booming demand for oil from these countries. Pre-recession the United States was the dominant importer of oil in the world. We now we compete with China and India on a global market for crude oil. This means greater competition for the United States to import oil and a greater price to go with it. The International Energy Association has warned that the amount of oil imported by China and India will quadruple within the next 20 years. This will put a serious strain on oil companies to meet the growing demands for crude oil. Within the last two years alone, China and India made up an astonishing 70 percent of the increase in world energy demands. Along with this, no major oil reserves have been discovered or tapped into in quite some time. The growing demand for oil is losing ground to the supply of oil companies, effectively raising the price of this oil.

The recent conflicts in the Middle East have contributed to the spike in the price of gas as well. A large amount of the world's as well as the United States' oil comes from the Middle East. With the political unrest that has been occurring there as of late, the uncertainty that the supply flow of oil being exported from there may be disrupted is driving up the cost of a gallon of gas here in the U.S. Also, there is fear that the political unrest in Egypt and Libya will spread to Saudi Arabia, who is one the largest exporters of oil in the world, causing a massive disruption in the supply flow of oil to the world. The uncertainty of the oil supply coming from these Middle East Countries is costing you more at the pump.

Gas prices within the U.S. are often seasonal. Prices typically go down in the winter months such as January and February due to lowered demand for gas. They then tend to rise in price in the spring and then skyrocket as summer approaches, as people tend to go on vacations and commute more in the nicer weather.

In the United States there are also federal and state taxes that are added to every gallon of gas that you purchase. These taxes are supposed to be used to fund new roads, highways, and various other things to make commuting more efficient and strengthen infrastructure. The amount of tax per gallon of gas varies from state to state but is nationally averaged at about 40 cents per gallon of gas currently. These 40 cents can add up quickly especially when considering the price