The cost of filling up your car's gas tank is rising again. Because crude oil prices are climbing fast, prices at the pump could exceed the highs of 2009.
Why are gasoline prices moving into record territory again? There are economic reasons of course like the falling surpluses and the falling dollar. Cold weather plays a big role as well.
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If consumers got cheap energy in 2009, the trend for 2010 could be upwards.
How is the price of gas decided?
Crude oil is the first component. Add to that the taxes, refining costs, marketing and distribution of gasoline to get a final pump price.
Demand is growing worldwide, particularly in China and this has an effect on the prices of crude oil.
Political instability and bad weather can limit supply. So do other production disruptions like accidents at refineries.
In the long term, higher crude prices always lead to higher prices at the pump. But this takes some time because most oil is sold under long-term contracts, which are a bit different from the "spot" prices you see in the news.
Why can prices vary from state to state?
The biggest difference across states is the State tax. Some states, like California have a unique blend that can only be produced by a limited number of refiners. This makes the price more dependent on disruptions in supply or spikes in demand.
If you would correct the current record gasoline prices for inflation they would lose some of their drama. And compared to many other developed nations, prices in the United States are still very affordable. Maybe this is why American car manufacturers never felt the pressure to build fuel efficient engines.
Are the gas companies profiting?
Some consumers are always finger pointing at the big oil companies. Are they making illegal agreements amongst themselves to keep prices high? Over the years numerous government investigations have never found any evidence of this.
In a free economy prices are determined by the laws of supply and demand. But since demand is relatively insensitive to price changes, this mechanism does not work very well and gasoline prices are always very volatile. Even when gas is expensive, you still keep driving to work, don't you?
So what can you do?
You need to do some research when you are shopping for a new car. Gas mileage is a big issue nowadays and the effect on the cost of owning your car for many years can be quite impressive.
Will Gas Prices Rise in 2010?
Steven Blair is passionate about cars. He writes about car gas mileage comparisons and saving fuel on his blog.
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