You’re driving your car, when suddenly a light pops up on your dashboard. You’re running low on gas, again, for the second time in a week. You stop to fill it, and the bill is over fifty dollars.

Ouch.  How did this happen?  Why is this happening? Why, all of the sudden, does gas cost so much?

For context, gas prices merely three years ago averaged at approximately $2.60 nationwide. Now that price has nearly doubled, with many states experiencing gas prices that have risen to over $4 per gallon.

The price of goods is usually determined by supply and demand, and fuel is no different. However, prices include acquiring the supply, marketing, refining, taxes, and more.

After exiting the global pandemic, demand for gasoline went up and this has inevitably increased the cost of gasoline.

“Gas prices change for a variety of reasons,” said economics teacher Mr. Shawn Thornton. “Ultimately it has to do with supply and demand, and as long as OPEC operates as a cartel and fixes output, we are at the mercy of them.”

High school students and gas prices

With more and more students driving to school, there has been an increase in the number of teens behind the wheel throughout the decades. As an effect, students have voiced their opinions on the rising cost of transportation. 

“I did not take into account the fuel efficiency of my car because the increase in gas prices was unexpected and rapid,” said senior Isabel Rivera. 

As more and more teens begin to drive, these students are affected by the increase in inflation and petrol prices. 

COVID’s effect on prices

Before the pandemic, prices at the pump were consistently increasing and decreasing at a stable rate. Demand for the product was fluctuating as Americans traveled by car. As an effect, oil production stayed at a constant in most cases, but prices before were not as high as they are now. 

According to Investopedia, the required COVID quarantine and extreme regulations prevented Americans from traveling and cut the demand for gas by almost half. Supplying the product, therefore, took a tremendous hit. 

“I have had to set aside a certain amount of my weekly paycheck and each time it increases,” said Rivera.

Many gas companies including Shell, Mobil, BP, and many others saw record losses throughout the pandemic. These companies had to keep their prices low because the demand was not so great.

Post-pandemic problems

The low gas prices of the pandemic were a relief for many citizens, but now prices are going through the roof. As various states lifted their restrictions, people began to drive again. The demand for more and more gas has increased the rate of increase per gallon of gas. 

The problem is that companies that sell the barrels of oil to these companies are not prepared to produce so much gasoline. They must rapidly produce millions of barrels to supply the pumps. The lack of supply means that the cost for a barrel rises. 

Additionally, companies are expected to recover losses from the previous year meaning they need to keep prices higher in the future. 

Corporate greed

Gas companies this year are seeing record profit margins, despite the increasing price of petroleum per barrel. Even though the Russian conflict has depleted the supply of petrol.

Even through the Russian conflict, a depletion in the supply of petroleum, and inflation, gas companies have somehow managed to make more profits.

Within the community of corporations, particularly gas corporations, there is a special tool used when trying to soak up profits. Basically, when the price of the barrel goes up, the price also goes up. Conversely, when the price of the barrel goes down, prices stay high for as long as possible. 

When increased profits are the goal, companies will keep their prices high and slowly bring the price down so as to make more profits when the price really should be lower. The concept is not new, as it is dated back more than five decades ago. 

“In the environment of maximizing shareholder value, the idea that a company that already makes huge profits would see some of their profit decline to absorb some of the cost-push inflation that we are seeing does not exist anymore,” said Thornton. 

While gas companies have little to do with the supply of the product, they do not take advantage of their circumstances to make more profit. 

Inflation

It is no secret that the United States as a whole is suffering from inflation. But what effect does that have on Americans at the pump?

According to several news sources, it can be asserted that gas prices and inflation have a strong correlation with each other. When gasoline prices go up inflation does too and vice versa. 

Apart from the following reason aforementioned, gas companies also have to take into account transportation costs, refineries, and more. As gas prices stay at a high price, inflation will continue to be high.

For more information take a look at the links below:

https://www.cbsnews.com/news/gas-prices-crude-oil-why-are-gas-prices-so-high-2022/

https://www.11alive.com/article/news/nation-world/what-factors-drive-gas-prices-russia-invaded-ukraine-war-oil-gas-energy/507-4cacdc8c-d5ef-49a4-aab8-3833bfa630fe