While watching the news this morning I noticed that the national average per gallon of gas rose a few more cents overnight. The current average price is $3.55 for regular and will probably raise a few more cents by the time i'm done typing this.The price of gas has more than tripled in the eight years i've been driving. Why such an increase? Why now? I'm already broke as it is!
I googled the phrase "why are gas prices so high?" and met a bunch of different answers. Most seemed to be about one conspiracy theory or another. As much as aliens want to mess with us by driving up gas prices, I knew that most likely it was something more down to earth.
I then looked into the price of crude oil, since that's where we get gasoline and I ran into this little graph:
According to this graph oil prices per barrel are 5 times as high as they were when I started driving which tells me that even if oil prices level off we've still got some price hikes at the pump coming our way.
So what causes oil prices to rise? Greed seems to be on the top of everyone's list, but I don't really buy that. I searched around and found two pretty sound reasons oil prices have gone up so fast lately.
1. Short Supply. I guess my 7th grade science teacher was right after all. The world really WILL run out of oil some day... It turns out that they drill for oil in the places that are the cheapest and easiest to drill. There's more oil out there, but it's really expensive to get to. The more money they spend getting the oil, the more they charge when they sell it.
Most countries scaled back drilling oil wells almost 30 years ago when there was an overproduction of oil which caused oil prices to drop by half. Now we're feeling the effects of that scale back.
Also, with political unrest in Venezuela, Africa, and Iraq, getting oil from these critical regions is a lot tougher than it used to be.
2. The Weak Dollar. Oil is traded in US$. As the worth of the dollar plummets, everything that is traded in dollars becomes more expensive. For example: In 2000, when oil was $25 per barrel, you could buy a barrel for 30 euros. Currently, with oil at around $115 per barrel, you can get a barrel for about 73 euros. That is an increase of $90 (345%) per barrel, but only an increase of 43 euros (143%). If the dollar were as strong as the euro, we would probably be looking at gas prices of around $2.25 per gallon, which I would take in a second after seeing today's $3.55 price tag.
