Gas Prices Are Rising — Why?

“Rising gas prices.”

The very thought — let alone that sinking feeling when one sees a higher-than-anticipated price when they roll into a gas station — makes most working Americans cringe.

That’s because rising gas prices are a hit to most people’s monthly budgets — especially those who are living paycheck-to-paycheck.

And that is just what gas prices have been doing in the last month.

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According to Reuters News Service, the average price of a gallon of gas in the lower 48 U.S. states was $1.77 on February 19. On March 20, just two days ago, the average price had jumped to $2.02.

In some places like Southern Ohio, gas prices jumped 30 cents overnight.

Why The Spike In Gas Prices?

The chief reason for higher gas prices, survey publisher Trilby Lundberg told Reuters, was the increase in crude oil prices in the last month — nearly $10 a barrel ($29.64 on Feb. 19 to $39.44 on March 18).

“We may see gasoline prices increase further even if crude oil prices do not continue rising because U.S. refiners have to prepare summer-grade gasoline to meet a May 1 deadline in most of the country.”

Because the gas you put in your car is made from crude oil, as Reuters notes, the increase in this cost is the single biggest contributor to rising gas prices.

Gas prices are going up [Photo by David McNew/Getty Images]But as easy as it might be to blame “oil companies and billionaires,” there are many other more realistic, closer to home reasons for rising gas prices as an analysis from CNBC makes clear.

  • companies that pump the crude oil have to pay their employees
  • it costs a lot of money to transport the crude oil to the refinery (and by the way, the U.S. gets the majority of its crude oil from Canada and Mexico; not OPEC nations in the Middle East)
  • refining (in layman’s terms, making the oil into gasoline) also costs money — anywhere from 30 to 43 cents per gallon
  • marketing — different gas companies (as well as retailers like Costco, and now Walmart) spend money to get potential customers to notice that they sell gas
  • retailers — local gas stations — also have to make a profit. Both the major chains and the “mom and pop” shops receive only a percentage of what consumers pay at the pump.

Taxes

The federal government also gets a portion of what people pay at the pump — 18.4 cents for every gallon. On average, CNBC notes, states also an average tax of 25 cents (as low as eight cents in Alaska, and as high as 42.6 cents in New York) per gallon.

Simply stated, every time you put gas into your car, roughly 40 cents per gallon is for taxes. So if you have to fill your car up with 10 gallons at the current average price of $2.02 per gallon, then one-fifth, or $4, of the total bill went to the government.

Summer Vacation

Gas prices to increase [Photo by Sean Gallup/Getty Images]As the weather warms up, families are more likely to travel, which raises the demand on gas, and hence leads to higher prices at the pump.

Keeping It In Perspective

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Even as gas prices are rising, it is important to keep two things in perspective.

First, even as the “price at the pump” creeps past $2 a gallon, gas is still cheaper than it was a year ago. By now, most people have forgotten that two years ago, the price was over $4 per gallon.

Second, the price of gas in the United States is still far cheaper than it is elsewhere.

According to Bloomberg, car drivers in most other nations pay far more than we do — and unless one lives in the Middle East, they are probably paying a lot.

  • In Russia, the average cost of gas is $2.36 per gallon
  • In Norway, the cost is $7.71 per gallon
  • In Hong Kong, it’s $7.54 per gallon
  • In The Netherlands, gas costs $7.18 per gallon
  • In the United Kingdom, gas prices are $6.91 per gallon
  • In German, gas costs $6.21 per gallon
  • In France, customers pay $5.96 per gallon

Most (though not all) of the cost in those nations is due to higher taxes.

What do you think? Are gas prices too high?

[Photo by Justin Sullivan/Getty Images]