By BEN R. WILLIAMS
Like millions of Americans, I find myself cursing softly under my breath every time I fill up my car just lately, watching in horror as the price creeps higher and higher. Why is gas going up in price?
I have heard two theories just lately. The first theory is that it has something to do with unemployment and stimulus checks. The second theory is that Joe Biden thought it would be cool to raise gas prices because he is a jerk.
Neither of these theories felt very satisfying to me, so I decided to read up on how gas prices are determined. The answer: it’s complicated!
There are four main factors that determine the price of gasoline: these are the cost of crude oil, state and federal taxes, refining costs and profits, and distribution and marketing.
Of these four factors, the biggest one is the price of crude oil. As of right now, the cost of a barrel of crude oil is hovering above $80. Last year, the high was $63.27.
You might also remember that at one point in April of last year, crude oil briefly traded below $0, the first time that had happened since trading began in 1983. How does that happen?
April 2020, of course, was right near the beginning of this endless global pandemic, and as countries around the world entered lockdowns and asked citizens to stay home to slow the spread of COVID, the demand for gasoline plummeted. As a result, gas stayed fairly cheap for a pretty long time.
Now, however, we’re getting out of the pandemic mindset — largely by pretending that it’s over — and the number of people traveling and driving long distances is going up. As demand increases, prices rise.
So why isn’t the supply rising to meet demand? Unfortunately, that also goes back to the pandemic. When the price of crude oil dropped below zero, it no longer made sense to produce oil and many wells simply shut down. Why spend a fortune drawing oil out of the Earth if you can’t even give it away? While demand inevitably rebounded, many of these wells still haven’t reopened, in some cases due to the cost considerations of restarting operations, and in some cases due to staffing shortages (for more on that topic, see last week’s column).
What’s happening to the oil industry is the exact same thing that happened to the lumber industry during the pandemic: demand went down, a bunch of sawmills shut down, then demand rose again before the sawmills could reopen and prices skyrocketed.
There are many, many things that we can blame on Presidents, but the President has about as much control over the price of gas as he does over the weather.
Frankly, if the President could control gas prices, every incumbent up for re-election would drop the price of gas to ten cents per gallon the week before election day, and you’d get a free bumper sticker when you filled your tank.
