What Affects Gas Prices

65 billion gallons of gasoline and diesel fuel are used each year. This is a number that will increase by 2.6% every year. Tracking gas prices is a hard task. They fluctuate, up one month and down another month. To the average person it seems like the gas companies pull the numbers out of the sky. I will talk about the many forces that impact the price of gas.

In the United States an average of 20 million barrels of oil are consumed each day. 45% for motor gasoline, the rest for distillate fuel oil, jet fuel, residual fuel and other oils. Each barrel holds 42 gallons; this means 19-20 gallons are used for gasoline. 178 million gallons of gasoline are consumed everyday.

This is the break down of where your money goes when you put $20 of gas in your car. 43% goes to crude oil, 31% to taxes, 13% to refining costs and the final 13% goes to costs and profits. Price increases usually occur when the crude oil market tightens and lower inventories. Growing demand can sometimes outpace refinery capacity.

Prices can also go up because of the type of crude oil available. There are different types of crude oil. They are heavy and light and sweet and sour. Light sweet oil is easier and cheaper to refine. Lately sweet oil supplies have been running low. So more sour oil has been used, which costs more to refine. Another reason prices can go up is station markup. This is when gas stations add a few cents per gallon to make a profit.

There are laws that prevent larger companies who can afford very low prices to make their prices so low that they drive out smaller companies.

Prices can sometimes go up because of natural disasters. Events such as wars and weather can raise prices. Military conflicts in countries with oil supplies make it difficult for oil companies to drill and ship crude oil. Hurricanes can damage offshore drilling platforms, coastal refineries and shipping ports. This was the case in hurricane Katrina. If a tanker is lost or damaged and leaks into the ocean, that can affect prices.

Oil comes from 12 countries that have an alliance called OPEC. OPEC stands for the Organization of the Petroleum Exporting Countries. These 12 countries are Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela. These 12 countries produce 40% of the world's oil. They also hold two-thirds of the worlds oil reserves.

OPEC can raise prices of oil when they need more money. When OPEC wants to raise the prices of crude oil they reduce production. This causes gas prices to jump due to short supply