Why the Price of Gas Goes Up and Down - Key Factors

If you've had to fill up a tank of gas lately, you've probably noticed that the price of gas is like Bitcoin. It's going higher overall, but it doesn't seem to be the same from hour to hour. So what's going on? Why is it over $4 in most places? Let's talk about why gas prices fluctuate and what in particular is causing them to ping-pong at the moment.

Crude Oil

Crude oil prices are the biggest percentage of the cost increase. Since oil makes up 43% of the price of gas, when it goes up, so does the gas. And with the war currently raging in Ukraine, the world is issuing sanctions against Russia. Unfortunately, much of the supply of crude oil comes from Russia.

The world has been making up the difference with supplies from Europe, the Middle East, the US, and other areas, but the ramifications of losing around 3 million barrels from Russia are being felt at the pump.

This volatility leads to prices rapidly vacillating, reaching a high of $130 per barrel, then down to $95, then back over $110, all within a week or two.

Supply and Demand

With COVID restrictions lessening, more people are driving, which increases demand. Demanding more gas during the Ukraine/Russia conflict and the subsequent shunning of Russian oil exports is a quick way to raise prices.

The Value of the Dollar

When the American dollar is worth less, it hurts our ability to buy fuel. Private jobs data in February of this year was not favorable, which hurt the value of the dollar. At the same time, the Euro strengthened, widening the gap between the two currencies.

Trading

Commodities traders can cause oil and gas prices to fluctuate at the best of times. These traders are purchasing contracts for deliveries of gasoline at a specific price; then, they sell the contracts to make a profit. This strategy leads to an asset bubble, which then leads to higher gas prices.

Location, Location, Location

Depending on where you live, your gas may be subject to gas taxes, which can come and go as new leadership undoes the policies of the previous administration. California is an excellent example of a location causing high gas prices.

Because the state is heavily focused on clean air, it levies some of the highest gas taxes in the nation. Another way location impacts fuel prices is how easy or difficult it is to deliver fuel. Texas has far cheaper gas than Hawaii for this reason.

The Perfect Storm

All these factors add up to create high yet fluctuating gas prices. It's no wonder that electric vehicle (EV) sales have been exploding lately. Even though many areas in the United States get their electricity from fossil fuels, the increased efficiency and the ability to charge EVs just about anywhere makes up for this inconvenience.

But if you're relying on good ol' hydrocarbons to propel you around town, be aware that a good chunk of your budget is going to be pumped into your gas tank.

Gas prices are affected by a wide variety of factors. When none of these factors are in consumers' favor, prices go up.