Tag: Gas Prices

The Impact of Crude Oil Prices on Gas Prices

The Impact of Crude Oil Prices on Gas Prices

When gas prices go up, you feel it at the pump in your car and in your wallet when you fill up. While it might seem like there’s not much you can do about rising gas prices, you can actually affect how much you pay at the pump by looking at the bigger picture to determine why oil and gas prices are going up in the first place. (Hint: It has a lot to do with crude oil prices.) Let’s look at how oil and gas prices work and how they affect gas prices that we see at the pumps.

Oil prices

You’ve probably heard it before, but there’s a reason that they say oil is king. The cost of crude oil (the primary ingredient in petroleum products) makes up a significant portion of most gas prices, so even minor fluctuations affect pricing at your local station. For example, an average gallon of regular gasoline costs around $2.58 today—but if you travel to Hawaii (home to some of the highest gas prices in America), you’ll pay more than $4 per gallon for regular fuel! On a related note, when Hurricane Harvey hit Houston last summer and forced several refineries offline, many stations saw a temporary spike in their prices as well.

General overview

Although crude oil prices aren’t directly linked to gas prices, they have a massive impact. This is because crude oil makes up 50 percent of what goes into a gallon of gasoline, with another 40 percent consisting of other refined products (ethanol and other additives). When prices for these products go up, gasoline becomes more expensive. So although crude oil isn’t necessarily a direct factor in determining your gas prices, it’s one you should keep an eye on. Why? Because many experts believe we are moving towards an age where more people will drive electric cars—if that happens, many states could eventually stop taxing traditional vehicles altogether.

Worldwide demand for oil

World oil market chronology from 2003 - Wikipedia

To understand how oil and gas prices are linked, it’s important to first look at worldwide demand for oil. Oil is a crucial part of many industries, from farming to manufacturing and transportation. And, while less relevant in developed countries like America, it’s a major source of energy in countries such as China and India—which means that when you pump gas into your car, you’re also supplying energy to entire societies in other parts of the world. In fact, petroleum is almost always one of the top five commodities shipped around the globe by sea. Currently (as of January 2015), there are about 96 million barrels per day consumed worldwide.

How does supply affect gas prices?

Supply and demand plays a huge role in gasoline prices. If there is a decrease in supply or an increase in demand, that would lead to higher gas prices at your local station. Another factor affecting how much you pay for gas is taxes, which vary from state to state and nation to nation. For example, Washington State’s gas tax is 37.5 cents per gallon compared with Idaho’s 21 cents per gallon, so an equal price might result in smaller profits at stations near Washington than it would near Idaho.