Who Not To Blame For High Has Prices

Don't blame the government for the shocking increase in gas prices. Taxes, both federal and state, account for only a small percentage of the price per gallon of gas. Also, do not blame the oil companies. Again, only a fraction of the amount you pay goes to the big oil companies. Finally, each service station only profits a few pennies from each gallon. The increase by more than a dollar in gas prices in less than a year cannot be due to the greediness of local stations.

So Why Are Gas Prices So High?

The most fundamental reason for the spike in gas prices is due to the basic economic rule of supply and demand. When demand is great, price goes up unless somehow they supply can keep up with the demand. Since no new major oil reserves have been discovered in the last few years, the supply is losing ground to the demand, hence the gas prices increase.

Why Is Gas Demand Up: China and India

The demand for oil is at an all time high. A great deal of the new demand is coming from China and India, the two largest economies of the developing world. There are over a billion people in each of these countries, and their economies are growing at a staggering 9 percent in China and 7 percent in India. They are using up oil at levels approaching U.S. consumption rates of just a few years ago.

Why Gas Demand Is Up: The United States

Despite the high gas prices, many Americans are still using large vehicles like SUVs, which consume enormous amounts of gas. Americans drive more than any other people and are less likely to carpool. An expanding population leads to expanding fuel consumption. Europe is following in the U.S. footsteps. According to some estimates, by the next 25 years, the demand for oil will increase to 140 million barrels per day.

Traditional Gas Suppliers Becoming Consumers

Many Middle East countries which are great oil suppliers are also increasing their consumption rates. Countries like Saudi Arabia and Iran are keeping more and more of their oil home, drying up the external supply. They have logic, As long as they can make the same amount of profit by selling less oil, they will do so.

Disruption of Supply Line

Oil prices are very much connected to world events. The war in Iraq and fighting in Nigeria has impacted oil prices and not for the better. Fear of war with Iran is also having an effect. Although conversely, there are some analysts who say the failure of the West to stand up to Iran is the real cause of the crisis. People are afraid that a nuclear Iran will set whatever price they choose for oil and the rest of the oil producing world will follow due to Iranian intimidation. These analysts argue that a war against Iran would actually reduce world oil prices.

Hurricanes

Finally, the oil industry in the United States is still feeling the consequence of Hurricane Katrina. Katrina destroyed a great deal of America's refining capability making it more expensive to refine crude oil. This also adds to the price of gas at the pumps.