Why are Gase Prices So High?

From GovGab

Why Are Gasoline Prices So High?

By: Jake | May 26, 2008 | Category: Money

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My post last week about saving money on gas had many of you asking why the price of gasoline was so high. You weren't the only ones.

Congress brought executives from oil companies to Capitol Hill last week and asked them to explain the price hikes. Unfortunately, there weren't too many clear answers. I'm not an oil expert or economist, but in this post I'll try to shed light on why gasoline prices are high.

The Energy Information Administration (EIA) of the Department of Energy (their job: to provide neutral data regarding energy in the U.S) says the cost of crude oil is the main contributor to the price of gasoline. Crude oil accounts for 70% of the price at the pump. According to the EIA, the spot price of West Texas Intermediate crude oil, which is the U.S. benchmark for light, sweet crude oil, has risen steadily from $101.54 per barrel on March 31 to a record high of $128.93 per barrel on May 20.

The main reason for crude oil's price increase is high worldwide demand. Countries like China (especially with the recent earthquake) have increased their imports of petroleum. Political events and conflicts in oil producing countries also affect the price. What's more interesting is that crude oil is traded worldwide in U.S. dollars and since the value of the dollar is declining, it causes the price of crude to go up.

In the EIA's "This Week in Petroleum" published May 21, they project prices will go up in June and will rise as long as the price of crude oil keeps increasing. The report adds that the usual Memorial Day and summer travel season increase in demand should be lower due to higher prices, but this will not have too much of an effect on price since millions will still travel. Policymakers have proposed lowering or repealing gas taxes, but it's not certain how much this would lower the price.

As long as the price of crude oil continues to rise, we'll be paying more for gasoline. Let's hope gasoline will never cost more than a gallon of beer or ketchup.

http://blog.usa.gov/roller/govgab/