Could the smart people on here please explain surging (US) gas prices?

[Ginevra]

Explain it like I’m five. I hear a bunch of conflicting info, depending on whether people love or hate the current administration. Please help me understand. 
 

Also, it is not lost on me that the few gas stations with the lowest prices around here (filled up for $3.79/3.80 yesterday, which is at  min. .10 cheaper than anywhere else) are “independent” fuel providers who allegedly don’t deal with certain international traders. I have no idea if that’s accurate but *somehow* those providers maintain consistently lower averages, despite them all going up everywhere. 

[mommyoffive]

inflation

Russia

[EKS]

Gas prices always go up when there is a crisis in the world.

[Lucy the Valiant]

We are buying oil from Russia instead of USA. 

[Katy]

Cutting off something like 20% of the worlds oil supply means the remaining barrels get more expensive.  It's not 1:1 because there's speculation about what might happen in the future.

[Amy in NH]

Speculators

[Pawz4me]

I'm not a smart person, particularly when it comes to commodities like oil.

But I think this article from Investopedia is a fairly good explainer, although it doesn't take the politics of war into account.

The tl;dr version -- supply and demand, sentiment about futures contracts (speculators)

[Bootsie]

In December, oil cost below $66 per barrel.  Today the price is almost $113 per barrel.  A significant increase in the price of the major input to gasoline is going to cause the price of gasoline to rise.  

I do not know anything about the comments regarding independent fuel providers dealing with particular international traders.  Gasoline that is purchased at different branded stores can be refined at the same refinery.  

[athena1277]

Another reason is that US refineries aren’t producing as much as they could be.  I read somewhere that they are producing 10% less than a year ago then there was less driving.  If they increase production it would bring prices down, but they are afraid to increase much because it would hurt them if something happens later this year and we stop driving as much again.  
 

 

[Faith-manor]

I don't know all that goes into it. I do know that in times of war, and whether NATO wants to call it war or not we are pretty much "at war", consummation goes up crazily. Just think of the amount of fuel required for moving all of the hardware, sending troops to borders, running supply missions, etc. and we are doing that during the winger heating season in the northern hemisphere. I think that puts a big strain on the system. Add nervousness about war footing/conditions, and a damper on how much oil anyone wants to buy from Russia, and I think it creates a bit of a storm. But that is just rambling speculation because I am soooooooo not an expert in this.

[Pawz4me]

I suspect another factor, although perhaps a small one in the scheme of things, is the time of year. The price of gas almost always goes up a little in late winter/early spring as the refineries switch from winter blend over to summer blend. I also seem to remember that they often do maintenance around the time the switch is made, which temporarily reduces their capacity. 

[Bootsie]

10 minutes ago, athena1277 said:

Another reason is that US refineries aren’t producing as much as they could be.  I read somewhere that they are producing 10% less than a year ago then there was less driving.  If they increase production it would bring prices down, but they are afraid to increase much because it would hurt them if something happens later this year and we stop driving as much again.  
 

 

Where did you get this information?  According to this, US Utilization of Refinery Capacity (ycharts.com) refineries are running at about 88% capacity and this time last year it was at about 82% capacity.  

[Bootsie]

Gas prices are determined by supply and demand.  Any increase in demand will cause prices to rise.  Any decrease in supply will cause prices to rise.  

There is some increase in demand:  people are getting out more than they have in the past two years, taking delayed trips, driving to the office, etc.  Also, an increase in the money supply (and we have experienced a large increase) causes demand to rise.  There is probably also an increase in demand due to panic--more people are making sure that they have a full tank of gasoline.

There is a decrease in supply:  if we don't buy from Russia there is a lower supply.  Any cost of doing business, including transportation costs and labor costs, will decrease supply. 

It is also important that most oil is bought in the futures market rather than a spot market.  A spot market is one in which the good is paid for and received on the spot.  If you walk into the store and pay $5 for a gallon of milk and walk out with the milk, you are buying in the spot market.  If you agree to go to the store in one month and buy 100 gallons of milk for $5 a gallon--and you are obligated to do that in one month and the store is obligated to sell you exactly 100 gallons of milk for $5 a gallon, you are purchasing in the forward market; that is, you are entering into a contract today that obligates you to do something at a future date.  When people enter into these contracts they must think about what the world will be like when they have to honor the contract.  If they think that it may be difficult to transport oil in one month when the contract has to be fulfilled due to worldwide shipping problems due to war, for example, they will charge a higher price in the contract.  

[Guest]

Thank you, everybody, for your thoughts. I don’t have time to individually respond right now but thank you. 

[Lucy the Valiant]

"Energy independence" is also a useful search term. 

[Amy in NH]

I think another factor is political.  Wealthy people who own the refineries want prices to be low when the guy they like, who does political favors for them, is in office, and vice versa so that people will associate higher gas prices with the political party that doesn't do favors for the refinery-owners.

[Ting Tang]

I live in a rural area, and my husband told me the "cheap stuff" was at $4.10 per gallon. It has jumped from $3.65 the previous day.  I am wondering what it is at today.  I almost don't want to look. 

 

[fairfarmhand]

Yeah, last week I filled up at the place I always get gas for 3.21 a gal.

A few days later after Ukraine was invaded, I drove by the same place and it was 3.59

[Faith-manor]

It is $3.89 here. Was $3.33-39 depending on the station before the invasion. I am expecting $6-7 a gallon by June if this drags on.

[Melissa in Australia]

$2au litre here for premium 

[Guest]

2 hours ago, Lucy the Valiant said:

"Energy independence" is also a useful search term. 

It is, but I also think this phrase is being used to represent an inaccurate narrative. Google this phrase and Forbes magazine anyone who wants to follow that trail, which is far too political to discuss here. 

[Guest]

1 hour ago, Amy in NH said:

I think another factor is political.  Wealthy people who own the refineries want prices to be low when the guy they like, who does political favors for them, is in office, and vice versa so that people will associate higher gas prices with the political party that doesn't do favors for the refinery-owners.

Respectfully, I don’t think this is true because the last time I paid this price for gas it was the opposite party. So that as a motive makes no sense to me. 
 

The current cost increase is abnormal. IOW, I’m not talking about a small fluctuation between $2.80 and, say, $3.15. It’s jumped tremendously in the past few months, and it jumped some .30 from last weekend’s rate. 

[Bootsie]

Oil prices rose 7% today--so that oil is now over $115 per barrell--the highest price in over a decade.  The last time the price was over $100 was in 2014.  (It even went negative in.  It was averaging about $60 pre-COVID, so it is about double pre-COVID prices to purchase oil to refine into gas.  And, the price has increased about 50% in the past two months alone.  

[Tanaqui]

It's worth noting that USA gas prices, even with "the surge", are artificially low. We pay some of the cheapest prices in the world, because the USA not only massively subsidizes the fossil fuel industry, but also doesn't tax the product at the same rate as other developed nations.

[Ting Tang]

Here is a chart I found.

[Guest]

26 minutes ago, Tanaqui said:

It's worth noting that USA gas prices, even with "the surge", are artificially low. We pay some of the cheapest prices in the world, because the USA not only massively subsidizes the fossil fuel industry, but also doesn't tax the product at the same rate as other developed nations.

Yes, I know that, but I always resent that statement because a) car usage in the US is necessarily far different than Europe and b) ain’t no administration gonna win votes with that rhetoric. Most families in the US cannot afford for gas prices to increase 300% even if that would match the normal price in another country. 

[Guest]

28 minutes ago, Ting Tang said:

Here is a chart I found.

“Average annual” does not show what has actually happened well. I remember $4/g perfectly well under GWB. I’m sure it didn’t average out to that, though. 

[Faith-manor]

1 minute ago, Quill said:

Yes, I know that, but I always resent that statement because a) car usage in the US is necessarily far different than Europe and b) ain’t no administration gonna win votes with that rhetoric. Most families in the US cannot afford for gas prices to increase 300% even if that would match the normal price in another country. 

Yes. And we don't have universal health care but when you take into account local and state taxes plus gas taxes plus federal tax and sales tax, school milages etc., many Americans pay 55% of their gross income to taxes and then have high car and property insurance to pay on top of Health insurance premiums that run $8,500-22,000 a year with an average $8400 deductible plus other out of pocket not covered costs. So for a lot of families, paying $6-10 a gallon in order to drive to work when 45% of the population has zero access to public transport, is not possible unless we want people to live in those cars en masse.

Universal healthcare and robust public transport makes high fuel prices doable.

[gardenmom5]

Importing Russian oil

shut down the keystone pipeline so we now have to import oil instead of export oil.

[Ting Tang]

12 minutes ago, Quill said:

Yes, I know that, but I always resent that statement because a) car usage in the US is necessarily far different than Europe and b) ain’t no administration gonna win votes with that rhetoric. Most families in the US cannot afford for gas prices to increase 300% even if that would match the normal price in another country. 

Agree! 

8 minutes ago, Quill said:

“Average annual” does not show what has actually happened well. I remember $4/g perfectly well under GWB. I’m sure it didn’t average out to that, though. 

True! Average is an average. I thought I paid the most around 2008-9 and have no reason like recollection of those higher averages during Obama, but I was having babies then and I bet my husband filled our vehicles then! 

[prairiewindmomma]

Bootsie’s explanation is good, especially with regard to futures. 
 

The scenario we are in is kind of like we’ve had a sore tooth for a while and have been needing to get a filling done. We’ve put it off too long and now we need a root canal and a crown and we’re just hoping to keep the tooth and not need an implant.

We have, for a very long time, needed to move towards electric vehicles, public transport, and other things that require a significant capital outlay upfront and we’ve put it off too long. We’ve delayed through a variety of administrations for a variety of reasons.  The situation we are in sucks immensely, but we are past peak oil and the consequences of delay are hitting harder. 
 

Expensive fuel costs like expensive food costs and expensive health care and everything else always disproportionately hit the poor: this is just significant enough it is hitting the middle class also. The rich are still going to be living their best lives, iykwim.

Edited March 4, 2022 by prairiewindmomma

[prairiewindmomma]

@Bootsie, I’d also like to give kudos to you for nailing last year how significant the  inflation this year has been/will be. I know economics is your area of expertise, but you’ve been more accurate than a lot of the talking heads. Well done.

[AmandaVT]

Here's one that's slightly more nuanced and less political. I miss the sub $1 days in the late 90's!! 

 

[QueenCat]

We should all be glad that the price of gas hasn't kept up with the rate of inflation over the past 50 years. 

[Ting Tang]

13 minutes ago, AmandaVT said:

Here's one that's slightly more nuanced and less political. I miss the sub $1 days in the late 90's!! 

 

I remember those days! 

[Faith-manor]

43 minutes ago, gardenmom5 said:

Importing Russian oil

shut down the keystone pipeline so we now have to import oil instead of export oil.

Only 1% of total crude processed in US refineries comes from Russia. We export more than we import. Our political contracts are, hmmmm, interesting to say the least.

[Lucy the Valiant]

40 minutes ago, prairiewindmomma said:

Bootsie’s explanation is good, especially with regard to futures. 
 

The scenario we are in is kind of like we’ve had a sore tooth for a while and have been needing to get a filling done. We’ve put it off too long and now we need a root canal and a crown and we’re just hoping to keep the tooth and not need an implant.

We have, for a very long time, needed to move towards electric vehicles, public transport, and other things that require a significant capital outlay upfront and we’ve put it off too long. We’ve delayed through a variety of administrations for a variety of reasons.  The situation we are in sucks immensely, but we are past peak oil and the consequences of delay are hitting harder. 
 

Expensive fuel costs like expensive food costs and expensive health care and everything else always disproportionately hit the poor: this is just significant enough it is hitting the middle class also. The rich are still going to be living their best lives, iykwim.

Electric vehicles and public transport in much of the USA are still dependent on fossil fuels . . . ? 

[Lucy the Valiant]

19 minutes ago, Faith-manor said:

Only 1% of total crude processed in US refineries comes from Russia. We export more than we import. Our political contracts are, hmmmm, interesting to say the least.

Changing as we speak 😞 . . .  https://www.eia.gov/todayinenergy/detail.php?id=46776

Edited March 4, 2022 by Lucy the Valiant

[prairiewindmomma]

8 minutes ago, Lucy the Valiant said:

Electric vehicles and public transport in much of the USA are still dependent on fossil fuels . . . ? 

Here, electricity generation is hydro, and probably 1/3 of the public buses we take are also electric. The school district is converting to electric buses as they replace. Light rail is electric (750V DC). Street cars are electric. My neighbors all charge their cars off of solar. 
 

Just because everything can’t be converted doesn’t mean we shouldn’t convert what we can…

[Ting Tang]

I have to drive at least 15 miles to the nearest grocery store, and here in rural America, it would not be efficient to have public transportation.  Plus lugging groceries for a family of 6 with 4 kids on a bus isn't happening for my family.  I think some politicians are out of touch with how a substantial chunk America lives.  They live in urban communities, don't have children, etc.  They think we should all desire the same lifestyles.  I have done the commuting on public transit to/in/from Chicago thing before I moved here.  Standing, waiting, walking through the weather elements....  Oh the crime on public transit....yikes.  I guess some people enjoy that, but I got it out of my system.

I do believe we are moving towards electric vehicles.  Look at how much really has changed.  It really is incredible.  I don't think it should be all or nothing in pursuing greener technology---  the risk being dependence on dictators like we and the west have now.  I'm just rambling. I know things are complicated.

 

 

 

Edited March 4, 2022 by Ting Tang

[Bootsie]

1 hour ago, prairiewindmomma said:

@Bootsie, I’d also like to give kudos to you for nailing last year how significant the  inflation this year has been/will be. I know economics is your area of expertise, but you’ve been more accurate than a lot of the talking heads. Well done.

Thanks for the kudos.  It is one of those times I would prefer not to have been correct.  I must admit it is easier to be honest about what economics says will happen when you aren't having to worry about ratings for your news outlet, catchy headlines, or politics.

[Tanaqui]

It is not "necessary" for most of America to not have access to public transportation. 80% of this nation lives in cities and suburbs. We are a heavily urbanized nation. 80% of us are not ruralites who, by necessity, live waaaaaay out away from our grocery stores.

Quote

Oh the crime on public transit....yikes.

 

Even with high crime rates it is still far safer to take the train in Chicago than to drive in the boondocks. Driving is *dangerous*, even if you don't count the illness and premature death caused by pollution and, now, climate change. Collisions cause 40,000 deaths a year in the USA. The death rate per passenger mile is 9 times higher for private vehicles than for buses.

https://injuryfacts.nsc.org/home-and-community/safety-topics/deaths-by-transportation-mode/

[Bootsie]

This chart shows crude oil prices and gas prices in the US index at 100 in 1990.  Today we are paying about 3 times per gallon at the pump as what we paid over 3 decades ago.  However, oil prices are close to 6 times higher than what they were 3 decades ago.  Crude prices have been more volatile than oil prices.  Looking at the data it is surprising that gasoline prices are as low as they are. 

 

[Faith-manor]

13 minutes ago, Ting Tang said:

I have to drive at least 15 miles to the nearest grocery store, and here in rural America, it would not be efficient to have public transportation.  Plus lugging groceries for a family of 6 with 4 kids on a bus isn't happening for my family.  I think some politicians are out of touch with how a substantial chunk America lives.  They live in urban communities, don't have children, etc.  They think we should all desire the same lifestyles.  I have done the commuting on public transit to/in/from Chicago thing before I moved here.  Standing, waiting, walking through the weather elements....  Oh the crime on public transit....yikes.  I guess some people enjoy that, but I got it out of my system.

I do believe we are moving towards electric vehicles.  Look at how much really has changed.  It really is incredible.  I don't think it should be all or nothing in pursuing greener technology---  the risk being dependence on dictators like we and the west have now.  I'm just rambling. I know things are complicated.

 

 

 

Here we could use it though. Right now our county seat of 4000 only has one bus, and it is by appointment only for transporting people with disabilities. Yet the income levels in this town make it difficult to sustain owning, insuring, and maintaining cars. Just about zero crime in that town. Many people have clamored for a couple of regularly scheduled buses for the town, and they would be heavily used, very heavily used. We have so many elderly folks who can't drive anymore. They would do their grocery shopping, pharmacy runs, doctor appointment, etc. on public transport if they could get it. It doesn't have to look like the Chicago transit system in order to benefit the people and reduce oil consumption. The problem we have is people cannot imagine something different than the status quo, or worse, a future in which it simply won't matter what we like or don't like because the oil won't be there and the earth is wrecked from pillaging it for every last drop of oil, not to mention the air pollution. Very rural areas and farms will always need to run their equipment, and by definition ition, not live in urban and semi-urban areas. But, that doesn't mean their towns can't or shouldn't do better. The big issue is a one size fits all "fix" is no fix at all. There has to be creativity and adaptability for a variety of situations.

[Ting Tang]

1 minute ago, Faith-manor said:

Here we could use it though. Right now our county seat of 4000 only has one bus, and it is by appointment only for transporting people with disabilities. Yet the income levels in this town make it difficult to sustain owning, insuring, and maintaining cars. Just about zero crime in that town. Many people have clamored for a couple of regularly scheduled buses for the town, and they would be heavily used, very heavily used. We have so many elderly folks who can't drive anymore. They would do their grocery shopping, pharmacy runs, doctor appointment, etc. on public transport if they could get it. It doesn't have to look like the Chicago transit system in order to benefit the people and reduce oil consumption. The problem we have is people cannot imagine something different than the status quo, or worse, a future in which it simply won't matter what we like or don't like because the oil won't be there and the earth is wrecked from pillaging it for every last drop of oil, not to mention the air pollution. Very rural areas and farms will always need to run their equipment, and by definition ition, not live in urban and semi-urban areas. But, that doesn't mean their towns can't or shouldn't do better. The big issue is a one size fits all "fix" is no fix at all. There has to be creativity and adaptability for a variety of situations.

We have that type of transportation available here in the bigger towns, and I understand what you are saying--there is definitely a need. The rate of car ownership is very high in America, and I don't think Americans are going to give up their independence and freedom---urban, suburban, and rural dwellers.  People keep saying we need green technology, but personally, I see a lot of progress.  One of the grocery stores has several Tesla charging stations where I shop.  Just don't ask me to rely on a bus, lol. Especially in subzero temperatures! 

[Guest]

1 hour ago, Ting Tang said:

I remember those days! 

I remember filling up my car for the week with a $10 bill. 

[Lucy the Valiant]

45 minutes ago, prairiewindmomma said:

Here, electricity generation is hydro, and probably 1/3 of the public buses we take are also electric. The school district is converting to electric buses as they replace. Light rail is electric (750V DC). Street cars are electric. My neighbors all charge their cars off of solar. 
 

Just because everything can’t be converted doesn’t mean we shouldn’t convert what we can…

Yes, I definitely agree with converting where we can and where it makes sense! Attempting to force it into places where it does NOT make sense, and pretending that electric cars are not largely dependent on coal and natural gas is . . . devastating the economy AND creating significant distrust among "regular people." I think there's a huge hole in communication regarding energy, at least in my area of the USA.

[Corbster98]

$4.39/ gallon here. More than $.30 increase/ gallon since yesterday. 

[Faith-manor]

3 minutes ago, corbster98 said:

$4.39/ gallon here. More than $.30 increase/ gallon since yesterday. 

Ouch!

[melmichigan]

2 hours ago, gardenmom5 said:

 

shut down the keystone pipeline so we now have to import oil instead of export oil.

No one shut down the Keystone pipeline. They closed down construction of an expansion. At the same time the government allowed an increase of 29% in the flow through the existing pipeline. We still export oil we can’t refine, particularly light crude.