Why Is Fuel So Expensive, Anyway?

There are days where you’d swear the prices at the gas pump are going up as you watch. Gas prices have increased 25% in just the last four months, with no sign of stopping. In the last 15 years the average price of a gallon of gas has more than quadrupled.

Unfortunately, while gas prices have gone through the roof, most people’s pay has not, which has probably left you wondering how high gas prices are likely to rise, and whether or not you’ll be able to keep your head above water.
                           
Gas prices are affected by a number of different things. At the level of the gas station, gas prices are set by cost of a replacement. Basically, gas has to be priced according to how much it will cost to replace it, rather than how much it cost to buy it. This means you have to pay for the fear of prices rising later.

The rising price of crude oil is another factor that has caused gas prices to rise. This attributed to the actions of some investors, who have started bidding the price of a barrel of oil ever higher, resulting in high gas prices.

This can work together with the cost of replacement, since when costs go up, speculators begin buying more in anticipation of higher profits, which in turn causes prices to rise, result in a vicious cycle of ever rising prices.

This is compounded by the weakening US dollar. When our currency gets weak against other countries, where we get much of our oil, the oil companies begin to charge more for gas. This, again, is another example of a vicious circle pushing prices up, since rising gas prices negatively affect the economy, which drives the dollar down and, well, you get the idea.

So how high are gas prices going to go? Investment firm Goldman Sachs, one of the world leaders in finance, anticipates that crude oil will rise another 25 dollars per barrel. Usually a dollar increase in a barrel will result in a rise in gas price at about 2 cents per gallon.

If Goldman Sachs is correct, then you’re looking at least another 50 to 60 cents increase in the price of a gallon of gas. For most of use, that means gas prices of upwards of 4.00 dollars a gallon. The upshot is that gas prices are expected to drop in the fall, although you shouldn’t expect to see them below 3.00 dollars any time soon. Better keep tightening those belts and pushing to get better fuel economy.