Why are Gas Prices so High?

With the price of crude oil hovering around $100 a barrel (and not to forget the steep climb continues), it is no wonder that concern is growing about the gas prices being so high. After all, modern economies are kept moving by this lifeblood. For instance, in the United States alone personal vehicles consume more than 140 billion gallons of diesel fuel and gasoline per year. However, there are several factors that contribute to the gas prices being so high. Given below are a few of them.

Increasing Demand for Oil

One of the main catalysts for the incessant rise in gas prices has been one of the most fundamental economic reasons - the juggling that takes place between demand and supply. Indeed, the demand for oil has never been as high as it is these days. And one of the main reasons for this is the continuing rapid economic growth of China and India, the two largest economies of the developing world. With a population of over a billion in each of these countries, along with an annual growth rate of 9 percent in China and 7 percent in India, both consumers and manufactures are guzzling up energy at incessantly increasing rates.

Plus, there are no signs of any flagging of demand from the industrialized countries either. In the United States, for instance, people still continue using large vehicles like SUVs, which consume enormous amounts of gas. While the United States is continuing to grow economically, Europe too is catching up, which implies that there will be even further demand for oil. According to some projections, by the next 25 years, the demand for oil is set to go up to as much as 140 million barrels per day.

Role of Middle East

Some of the Middle East countries, a region where considerable amounts of oil reserves are located, have also become booming economies, and hence the governments there are rethinking the manner in which they have handled oil supplies. As a result, the traditional pattern of the countries of the Middle East being the suppliers of oil and the countries in the West being the consumers has altered. Thereby adding another element to the equation of supply and demand, which determines the prices of gas and oil.

Gas Prices affected by Geopolitics and Supply problems

Along with the demand for oil rising, many disruptions to the supply have created bottlenecks. For example, the war in Iraq has resulted in reducing oil production there, as has also happened in Nigeria due to rebel activity. The continuing nuclear weapons wrangle with Iran, the government increasing its control over industry in Russia, and the oil companies being nationalized in Venezuela has given rise to misgivings about future supplies. Although Libya is not a huge producer of crude oil, the unrest in the country has contributed to the change gas prices. Since the demand is high, any disruptions in the supply causes change in the prices.

Hike in Refining Cost

In recent years, refining crude oil in the US has also become more expensive, with experts citing two main reasons for this: congressional mandates resulting in shifting towards the production of more environmentally clean gasoline blends, and the oil refineries on the Gulf Coast being devastated by Hurricanes Katrina and Rita in the year 2005. Along with refining costs, oil companies are downgrading new refineries being constructed - all of which has resulted in tightening the supply even as the demand for oil has skyrocketed

Oil Wells drying Up

In addition, the production of crude oil in America has also become costlier since the places that have been easiest to drill have largely gone dry. This means that oil companies have to go increasingly into offshore oil-producing areas such as the Gulf of Mexico, which cost much more to drill in. Another contentious concern is the 'peak oil' theory - the notion that the natural limits of oil being exploited has been reached in the world, and that whatever may be the price, there is very little oil left in the ground. Even though this concept is largely dismissed, several countries are nevertheless starting to take this factor into account as one of the reasons for rising gas prices.

Transportation Cost

With oil companies having to access harder to reach locations, which makes it costlier to produce oil. Other than the oil wells in the United States, oil has to be imported from Canada, Mexico, Venezuela and Nigeria. Some of the oil wells of Central and South America are located in difficult to access locations, which adds to the cost of oil.

Dollar Costs
With dollar being devalued in the international market, the cost of oil has gone up considerably. In other words, the prices of oil is inversely proportionate to the value of a dollar. This is attributed to the fact, that oil has to be purchased only in dollars and one cannot make use any other currency including Euro, Yen, etc.

Along with the above causes of the rise in oil prices, the other reason is that the oil companies are being forced to reduce their stocks because of demands for making better use of resources as well as providing better returns to shareholders. After reading the answer to the question, why are gas prices so high, we will now have to find out, how can one tide over it. Like it has been oft-repeated, the only way to combat the escalating oil prices is with turning to greener options. Alternative fuel options will have to be used and invented. Car-pooling, using public transport, moving closer to workplace are some of the options, which can also be considered.