Why Are Gas Prices Going Up?

Anyone who has watched gas prices in the United States knows that they change frequently. Many may wonder why gas prices fluctuate so much and what the pricing trend has been in recent years. This article was written to help answer your pricing questions and paint a picture of the trends over the past 10 years.

How does pricing work

Many components go into gasoline pricing. To get the complete picture, we recommend that you check out our article titled “How Gas Prices Work.” It’s a quick read that will help you understand how supply and demand, as well as the various parts of the manufacturing and distribution process, influence the price you pay at the pump.

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What prices are projected for 2011

The U.S. Energy Information Administration (EIA) issued a forecast on May 10, 2011 regarding the projected gasoline prices for the remainder of the year. According to their forecast, the average price of gas will be $3.63 per gallon.

The EIA also issued a forecast for prices for 2012. Thankfully, their forecast shows that the average will be only slightly higher than 2011, with the average retail price weighing in at $3.66 per gallon. However, even with just a slight increase, the retail price will make quite the impact on your credit card balance. Consumers who fill their 12 gallon tank on a weekly basis will pay an average of $2,283.84 for their gas in 2012!

How does 2011 compare to the past

The EIA conducts a weekly survey that tracks the retail prices of gasoline throughout the U.S. According to this survey, the highest average retail gas price ever experienced in the U.S. was the wallet-busting amount of $4.11 per gallon in mid-2008. Experienced mid-July, consumers were starting to sweat big, and it wasn’t because of the mid-summer heat.

The $4.11 per gallon price was a major shock for most, even those who had been driving for just a couple of years. This shock is best understood when we uncover the average prices of the past 10 years. In 2001, the average was $1.47. Only five years later, the average was more than $1 greater, with the average in 2006 weighing in at $2.62. And just two years later we saw the recording hitting year in 2008 at $3.31. The next year, the average price dramatically dropped to $2.40; this was the lowest yearly average since 2005. At the end of 2010, the annual average had crept back up to $2.83 and by the end of April, the average for 2011 was already at $3.47.

As you can see, the trend over the past ten years (and for much longer) has been for prices to go up and down, with the price ultimately increasing over the long term.

Why have prices increased

As is explained in “How Gas Prices Work,” demand is a major component in the pricing structure of gasoline, including in 2008. As a whole, there is a constant demand for crude oil throughout the world for gasoline and other forms of energy. This demand coupled with a supply that is at a stand-still allows for the prices to increase.

However, the gas bubble burst by the end of that year as the U.S. economy began to crumble and make its impact on the global market. As the U.S. and global economy has begun to rebuild, gas prices have started to creep back up. This increase in price has been heightened due to natural disasters that have taken place in the U.S., creating a short-term shortage in supply due to distribution difficulties.

The rise and fall of gas prices will continue in the future as the economies strengthen and weaken. As with many other commodities, economics will always have a stronghold on the pricing of gasoline.

Follow @CreditDonkey or write to Meghan Clark at meghan@creditdonkey.com

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