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What factors make the price of gas increase or decrease?

There are many factors that impact prices at the pump. We took a look at how they are currently impacted global oil markets.

There are many factors that impact prices at the pump. We took a look at how they are currently impacted global oil markets.

From April through June this year, households in the US paid the highest gas prices in history, with a few key factors motivating the surge.

Meanwhile, US oil and gas companies were taking in record profits. Chevron reported $11.4 billion in profits, with the figure for Exxon Mobile hitting $17.9 in revanue from April through June. The average price of a gallon of gasoline was $4.93/gallon last week, down from record highs well over $5/gallon in June.

This price combines five components that determine the price

  • Taxes: 10%
  • Distribution: 8%
  • Refining: 27%
  • Crude Oil: 55%.

Taxes are fixed as opposed to a percent, so they have a fairly consistent impact on price. Currently, the federal fuel tax stands at $0.183, while the average state tax is a touch higher at $0.263.

The following three price variables are affected by one another. For example, aside from the increasing demand of crude oil, the price of the gasoline will be impacted by the cost of refining. The price will rise if there is high demand for refined oil products. If these prices increase, firms involved in the logistics and transportation of petroleum products will face higher prices to get the products to their destination. In many cases, these additional costs will be passed along to the consumer.

This is what we are seeing in the market now, except the impacts of tight supply are further exacerbated by major oil companies who refuse to increase the production of crude oil or absorb some of these increased costs with the record profits they are taking in. Instead, many are using their earnings to purchase more stock to drive up the company’s value on the stock market. Exxon Mobile spent nearly $4 billion on stock buy backs, dwarfing those seen in other quarters since 2018 where the amount never surpassed $447 million.

With fewer refiners in operation after the pandemic, costs have gone up, impacting the price at the pump. Compared to the figures recorded in August 2019, refined motor oil for gasoline has dropped from around 1.5 million barrels to 1.48 million barrels. Compared to the levels seen last year, production has not increased. However, compared to those seen in early 2022, levels have risen from an average of 1.3 million barrels produced in June 2022.

Compared to this time last week, the price of the barrel has moved down slightly from $0.93 to $0.90. These figures are also significantly lower from mid-June when the barrel hit $120.93.

What could be done to lower prices?

These prices come as the global supply for non-Russian fuel sources spikes after the European Union announced that the block would make dramatic cuts to the importation of Russian energy commodities. Russia has responded by cutting gas supply through the Nord Stream pipeline, and many geopolitical experts are warning that Russia may cut off supply altogether this winter.

Increasing supply

Increasing supply could further push prices down. However, companies raking in immense profits have decided not to increase production. The figures provided above also show that refining capabilities have not increased significantly over the last year.

Decreasing demand

Another way to lower prices would be to decrease demand. European countries, urged by the EU Commission to cut gas use by fifteen percent by the end of the year, are taking this strategy. Germany has decreased the price public transit to encourage ridership and reduce the number of vehicles on the road consuming the nation’s gasoline supply. Spain will follow Germany and make multi-service train tickets free from September through the rest of the year.

These record prices further highlight the global economies near fatal dependence on fossil fuels. The covid-19 pandemic, corporate consolidation, and the Russian invasion of Ukraine have shown how the security of many countries is severely threatened.


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