What Determines Gas Prices?
If you have been driving for the last few years, then you are well aware of the craziness of gas prices. In some parts of the country, gas prices even rose to higher than $4 per gallon. So you may be wondering to yourself why gas prices fluctuate so often and how they are determined. That’s why in today’s blog here at Fuelco in White Plains, we go over some of the major factors that influence gas prices across the U.S.
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One major contributing factor that goes into determining gas prices is taxes. The federal government taxes gasoline per gallon and that cost is then passed onto the consumer. However, while the prices of gasoline are affected by the federal tax, federal tax stays fairly consistent throughout the year and does not account for the fluctuation in prices.
The culprits responsible in part for the difference in gas prices are local taxes. Each state sets a different tax rate. Some choose to include sales tax, environmental fees, and other costs into the gas prices. The rate at which fuel is taxed varies greatly from state to state and can explain the differences in gas prices between states. But what factor accounts for the drastic jumps and dips in gas prices? The answer: crude oil.
According to experts, changes in the price of crude oil have been the primary reason for the change in gas prices in recent history. They claim that at least two-thirds of the price of gasoline can be accounted for from the costs of crude oil. Even a minute change in crude oil prices can have a dramatic impact on the price that we end up paying at the gas pump.
Supply and demand play a large role in influencing the price of crude oil. When production is high and demand stays consistent, gas prices drop because there is more crude oil available. When production is lower and demand is increased, gas prices tend to increase as a result as there being less available.
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Another factor that plays a role in determining gas prices is production during the various seasons. For example, in the spring when the weather is starting to get warmer, many oil production companies will start their annual maintenance. When maintenance is being performed, rigs may need to be shut down temporarily or may not be able to produce as much crude oil. This creates a lower supply in crude oil, which, in turn, increases the price.
Additionally, when the weather gets warmer, there are a few other factors that come into play. In warmer temperatures, government regulations require producers to use additives to reduce the environmental impact. While these additives reduce the impact on the environment, they also increase the production costs which are then passed down the supply chain all the way to the customer. Not to mention during the warmer months of the year, people are out and about more doing more traveling, which increases the demand for gasoline.
Maintenance, different warm-weather regulations, and increased demand for fuel in warmer months all contribute to higher gas prices during the spring and summertime. The opposite is true for winter months. Relatively little maintenance is being done, supply is higher, and demand is lower, so prices decrease during the colder winter months.
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There are many other factors that take part in determining the gas prices in any given area. Whether it be taxes, operating costs, supply and demand, or simply the time of the year, there are tons of different variables to consider when determining gas prices. Luckily, gas prices have been fairly stable and reasonable at the time this blog was written. But if prices ever skyrocket again, you’ll have a pretty good idea as to why.
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