what causes the price of gas to increase?

Why Does A Gallon of Gas Cost So Much?

Here is why gas prices are here to stay… and two ways to protect your wealth (even profit!)

from high prices at the pump.

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DailyResourceHunter.com

What factors decide the price of gasoline?

Some popular misconceptions are…

Large oil companies and local gas station owners raise prices

just to make a quick buck.

Gas prices are solely controlled by the

monopoly power of the Middle East, which

supplies mass quantities of oil to countries around the world. Stock traders, often referred to

as ‘speculators’, bid the price of oil up, resulting in higher fuel

costs for consumers.

These factors determine the price of gasoline per gallon.

11% of the cost per gallon goes to taxes. This includes federal, state and, depending on where you live, sales tax too.

Distribution and marketing make up for 5% of the total cost per gallon. This is the cost of building pipelines, advertising, and transporting gas and oil.

Refining makes up 12% of the cost. This is the process of turning crude oil into gasoline.

Out of one barrel of oil, about 45% becomes the stuff you pump into your gas tank, depending on the quality of oil and

what’s usable. The rest of that barrel is transformed into different hydrocarbon-

based fluids and chemicals.

Large oil companies like Exxon, Chevron

and BP often buy crude oil on the open market to supply their

own refineries, for logistical reasons.

U.S. refineries process blends of gasoline that have to meet clean air

policies. These blends are confined to certain regions. For example, you can’t sell Los Angeles gasoline in

Seattle, or Seattle gasoline in Chicago.

Did You Know…

Crude oil accounts for 72% of the cost your local gas station charges. When the price of

oil rises so does the price of gasoline.

Remember that oil is a product traded in a world market. With everyone bidding on the same barrels of oil, prices steadily rise.  

So even though the U.S’s demand for oil may decrease, China and India’s demand may increase, thus raising the price that

everyone has to pay for it.

With reserves of easy to acquire oil running low,

companies must obtain oil in tar sands, in shale, or offshore.

Extracting oil in these places requires more energy and leads to higher oil prices.

An area that often gets blamed for the rising price of crude oil is too much “speculation” in the market place.

The news might tell you that “speculation” is where big shot Wall Street bankers bidding the price of oil higher is resulting in higher fuel costs. But that’s not the case.

For example, the crisis in Iran has the entire oil industry worried. Iran is the 4th largest oil producer and controls access to the Strait of Hormuz which serves as a passageway for 20% of the world’s oil and 90% of all daily oil shipments from the Middle East.

Oil traders anticipate that a war in Iran would likely disrupt the supply of oil from the Middle East and cause a greater spike in the price per barrel. So naturally, buyers will pay a little more for oil now before it skyrockets in the future.

That’s what speculation is… buyers and sellers trying to estimate what prices will be in the future based on what’s happening in the world. But it’s the news that’s really driving the price.

Over the past 50 years, the dollar has lost 87% of its purchasing power. This is the biggest reason why you have to pay $4 for a gallon of gas

today when it would have cost you 50 cents fifty years ago.

Perhaps the biggest factor affecting the price of crude oil is inflation. Worldwide oil is priced in US dollars -- so as the

value of the dollar decreases the price of oil increases.

What can you do to lessen the impact you feel at the pump?

If rising oil prices are inevitable, take advantage of it.

Invest in large integrated oil and gas producers. These are the companies

out there finding and producing crude oil. As the price for crude oil goes up,

their share price should follow.

Tip #1

Tip #2

Invest in companies that transport oil and gas. These companies make more money when the price of oil increases

and in turn will earn you profits.  

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