The Guide to Understanding Gas Prices and Why They are So High
The only article you'll ever need to read to understand gas prices. (simplified)
Good morning everyone, but especially to those who drive a gas-guzzling car.
Today, I will give you a quick run-down on everything gas prices. these are the topics we’re going to cover:
-How do gas prices work?
-What causes gas prices to change?
-Why are gas prices so high right now?
Let’s dive right into it.
How do Gas Prices Work?
Gas prices are a complicated issue.
It is not just about the cost of gasoline but also the cost of oil, transportation, distribution, supply & demand shortages, and inflation.
The price of gas is determined by many factors, such as the cost of oil, transportation, distribution costs, taxes, and regulations imposed by governments on gasoline. Making pinpointing the reason for rising gas prices challenging.
However, an important factor influencing gas prices is how much people want to buy gas. If people want to buy more gas than what is available for sale, the price will rise to reduce demand for it.
The cost of oil is the most crucial factor that influences gas prices. When the price of oil increases(like it has with inflation and geopolitical tensions), prices will also increase. However, this is not always true because, in cases of a supply and demand shortage, gasoline prices can decrease as people seek to buy more gas than what is available.
What Causes Gas Prices to Change?
There are many factors that can affect the price of gas. It can change for a variety of reasons, such as:
- changes in the supply & demand of oil
- geopolitical tensions
- inflation
For example, if you have a country such as Russia, that exports the 2nd most oil in the world. Suddenly, stop exporting oil and natural gas, then there is a supply shortage, and the price of oil will go up. Affecting everybody’s wallet.
The price of gas also changes over time. It can change from day to day or even hour to hour, depending on how the market is doing. It can also vary depending on what country you are in. For example, in Canada and Europe, taxes on fuel are much higher than they are in the U.S., which has a much lower tax rate than other countries around the world. This means that if you live in Canada or Europe, your gas prices will be higher than if you live in America because there's more money being taken out at every step along the way - from production all the way up to the point you're buying it.
The inflation right now is over a 40-year high, making buying practically anything more expensive. But right now especially with gas prices due to unforeseen circumstances. The law of averages will kick in to effect eventually bringing prices to whatever the market decides is a stable level balancing supply and demand.
Why Are Gas Prices So High Right Now?
The price of gas is going up because of a number of reasons. The most important one is the increase in global demand for oil, which has been growing steadily over the past few years. (above shows the change in the price of WTI oil per barrel from 2021- 2022.)
The demand for oil has been increasing in recent years due to the rise in population and economic growth, especially in developing countries such as India and China. The supply of oil has not been able to meet this increased demand, and therefore, gas prices are going up.
Not to mention (like I did before) that Russia, the world’s 2nd largest exporter of oil, said they were going to stop all exports. Creating a supply shortage causes massive geopolitical turmoil. Sending fear through investors and American citizens. This causes the demand for oil to skyrocket leading prices higher and higher.
This is all I got for gas prices today, folks. I hope that you find clarity on the recent gas price surges across the country. Eventually, prices will come down, but today we just have to weather the storm. Have a great day, and remember to live in the moment.
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