Memorial Day is almost upon us, an annual event that typically triggers another annual phenomenon in the United States: high gas prices. By the calendar, summer starts in late June, but due to rising temperatures and dwindling school schedules, Memorial Day is considered by many to be the unofficial start of the summer season, heralding family vacations, cookouts, and trips to the beach. Whether a summer vacation involves getting into the family car or onto an airplane, fuel makes it possible, and around Memorial Day people use a lot of it. That annual spike in demand also inevitably triggers a spike in gas prices.
Why So High?
U.S. gas prices topped the $5 mark—a record high—in June of 2022 during a global wave of inflation. Despite much finger-pointing regarding the cause, no single person or organization decides the price of gas. Instead, a variety of players and factors figure into the equation. We’ll outline a few of those now.
The Price of Oil
The gasoline we put in our cars is derived from crude oil. In fact, most of the cost of gas comes from the cost of crude oil itself.
Refining
Crude oil must be refined to become gasoline, and the refining process adds its own cost to the pump price.
Taxes
Gas is subject to taxation from the federal government down to the local level, and this added cost is factored into the final price.
Distribution
Gas must be delivered from petroleum companies to gas stations, so there are associated transportation costs.
Marketing
Gas is a product and, like any product, has marketing costs.
Gas Stations
While some gas stations are affiliated with oil companies—Shell, Exxon, etc.—many are independent companies that purchase gas from refiners and add their own costs on top before reselling it to consumers.
Supply
The amount of available gas is another factor in the price.
Demand
When the demand or projected demand for gas puts a significant dent in the supply, the price goes up.
International Relations
Foreign policy and geopolitics can cause significant fluctuation in gas prices. For example: Amidst rising tensions between their two nations, President Biden visited major oil producer Saudi Arabia in 2022 to ask the Saudi government to increase oil production and thereby supply. However, the Saudis declined, and gas prices rose.
International Crises
International calamities such as Russia’s 2022 invasion of Ukraine can result in skyrocketing fuel prices around the globe. In that instance, the U.S. and other countries introduced sanctions including a ban on the importation of oil from Russia—a major oil-producing country—resulting in a supply shortage that drove up prices.
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Sources:
https://www.kiplinger.com/personal-finance/604688/how-gas-prices-are-determined
https://www.eia.gov/energyexplained/gasoline/factors-affecting-gasoline-prices.php
https://www.eia.gov/energyexplained/gasoline/price-fluctuations.php
https://www.forbes.com/sites/judeclemente/2018/06/27/the-link-between-crude-oil-and-gasoline-prices/?sh=73b0ecf37dbd
https://www.cnbc.com/2022/07/04/high-us-gas-prices-weigh-on-demand-with-impact-on-consumption.html
https://www.cnn.com/2021/06/23/politics/joe-biden-gas-price-fact-check/index.html https://www.theguardian.com/business/2022/jul/18/oil-price-rises-joe-biden-saudi-output-petrol-diesel-prices
https://www.bbc.com/news/business-63855030
https://www.forbes.com/advisor/personal-finance/why-are-gas-prices-rising/
https://www.nytimes.com/2022/03/10/business/russia-ukraine-war-gas-prices.html