July 28, 2022
Everyone in the United States seems to be talking about one thing and one thing only. No, not baseball or best bets to win golf’s US Open. No, not soaring temperatures. No, everyone is talking about the price of the pump.
Gasoline costs have surged across the country in 2022. Depending where you live, the cost of a gallon is anywhere from $4 to $6 right now. Who’s to blame for this punch at the punch? A person? A corporation? A country?
Welp, we want to find out. Here’s the major reasons why gas prices are so out of control right now (and for the foreseeable future):
Gas prices have soared to record highs most of 2022. Several different factors — from war to taxes — have contributed to the price spikes.
Price Of Oil
The number-one variable that influences the price of gas is NOT the sitting President, contrary to popular belief. It’s actually the price of crude oil. As of this writing, it’s hovering just under $100 — a decrease from the $120 it was trading at earlier this summer. We know what you’re thinking, “well, what the hell moves the price of oil so much?” The answer is simple: supply and demand.
Demand for oil has skyrocketed compared to 2020 lows when people were couped up at home and not driving and flying. American consumers are traveling back at the pre-2020 levels, which has surged demand. But here’s the bigger issue: supply of oil has been handcuffed recently.
You may have heard Russia invaded Ukraine. Welp, they did and the United States and Europe reacted by sanctioning Russia. That’s fine and dandy but the problem is Russia is a giant exporter of oil. In fact, Russia’s oil makes up 12 percent of the global market. With that supply chain cut off, other countries have increased prices to keep up with the new demand.
Russia is one of the world’s biggest exporters of oil. The US and Europe have sanctioned the country due to the Ukrainian war, meaning those countries have had to go elsewhere to get oil.
Refining Crude Oil
The price of actual oil itself isn’t the only thing that’s increased — so has the process of refining it into gasoline and diesel. Refineries are having issues of supply-and-demand of their own.
At the peak of the pandemic, some refineries shut down altogether since they were essentially “burning money” when demand for its products was so low. Many of those refineries never came back once the demand returned this year. For the refineries that are up and running, welp, they’re running at maximum capacity to make up for others. That means hiring more workers or paying overtime, which brings their own costs up. And you know who those costs are then passed onto? You guessed it — you, the consumer paying for gas.
The price of oil and refining it make up about 77 percent of the cost you get at the pump — oil price accounts for 60 and refining is the other 17. What about the other 23 percent? Let’s cover that next.
Image courtesy of Bloomberg
Both of these have marginal impacts on gas and diesel prices, but still, they can’t be completely glossed over. Let’s start with taxes. The federal tax rate is consistent across the entire United States, however, they do differ at the state level.
Take for instance, Pennsylvania, which has the highest such gas tax rate at 57.6 cents per gallon. Right behind them on the high tax side are California, Washington, and New Jersey. On the flip side, Alaska has by far the lowest tax rate at 8.95 cents per gallon — about 46 cents lower than Pennsylvania. This is why gas prices differ so much state to state.
The last ingredient in the cost of gas is the company actually selling it. Ya know, the Chevron or Shells of the world. It’s a competitive and lucrative industry, which means marketing expenses are a thing. Likewise, these companies also have to pay overhead of their own — wages to workers (plus benefits), lease payments, etc. — which trickles into how they price gasoline ever slightly.
Will Gas Prices Go Down Soon?
If you’ve read this far, you’re now completely aware of how prices at the pump are determined and how they’re not — a mythical button held by the President of the United States. But you’re probably still wondering, are gas prices coming down anytime soon?
It’s tough to say (no one knows what’ll happen in the Russia-Ukraine conflict, for example) but early indications imply slightly lower prices. Crude oil price has decreased and so has demand. Things could change, but the trend is heading downward at the moment.