Why Are the Gas Prices Going Up?

Seasonal

The market typically controls the price of gas, as dictated by the economics of supply and demand. The higher the demand, the higher the prices will be. Lower demand sends prices downward. Each year as summer approaches, suppliers and retailers charge more, because the demand is higher as people travel more. All transportation is affected by the high demand for fuel. Conversely, in the winter, when oil prices may be higher because of weather-related events, travel is typically stymied except for peak holiday times. Maintenance is usually scheduled at refineries at the end of the winter and tends to continue through early spring, depleting many wholesalers' reserves. Portions of the refining equipment are shut down completely, temporarily affecting supply. As the demand increases and the supply is reduced, wholesalers have yet another reason to raise prices.

Refineries

When refineries cut back on production, the supply side of the equation is affected and prices rise. Wholesalers can keep their inventories lower as well and have more of a direct effect on the retail marketplace. Wholesale prices are raised when wholesalers purposely keep supplies lower regardless of availability, allowing prices to continue to rise. Wholesalers affect the price at the gas pump more than refineries do when the supply-and-demand standard is applied. Refineries may be cutting back on their operations, but that does not always affect public demand.

Economy

When demand for gas decreases, prices for fuel should drop, but this drop does not always immediately follow the shift in consumer activity. Orders for crude from wholesalers are placed to oil producers at least a month in advance. When unemployment figures rise and the stock market performs poorly, the quick response by consumers to decrease consumption does not affect the delivery of oil reserves right away. Many economic indicators change so rapidly that, by the time that drastic economic times have passed, demand begins to creep up and lower price adjustments are not implemented.

Timing

Consumers typically shoulder tight gas budgets for a very short time before returning to previous usage levels. Wholesalers responding to transportation belt-tightening sometimes end up being caught with low reserves, causing prices to rise again, because demand once again has exceeded supply. At the same time, oil producers consider the political climate and respond by refining just enough oil to keep supplies at a lower level so they can maintain a profit margin. Countries that rely on oil production for their wealth watch the markets closely for signs of change so they can adapt and keep prices steady. When demand begins to exceed supply, they can raise prices overnight. But when the demand weakens and supplies look heavy for the short run, producers and wholesalers are much slower to lower prices.

Resources

• Energy Information Administration: Primer on Gas Prices