The Real Reason Why Gas Prices Are So High!
July 4th, 2008 |We’ve all been asking ourselves “Why are gas prices so high?” After all, less than 2 years ago, the price of gas was less than half what it is now.
The most common reasons given by people when asked that question are either “oil speculators” or “greedy oil companies”. The truth is, neither is the reason.
It may come as a surprise, but marketing and profits only account for about 16% of what you pay for each gallon of gas. Sure, oil companies are recording record profits, but that’s BECAUSE gas prices have gone up, not WHY gas prices have gone up!
The answer is actually quite mundane - Economics 101: demand has outstripped supply.
The world economy runs on energy, and most energy comes from oil. As China and India enter a hyper-accelerated industrialization period, with so much of the world’s population, their thirst for oil has increased dramatically. In a world where we already matched supply with demand, this surge in demand has a huge impact.
While demand rises, refining capacity remains stagnant. Refineries had already been operating near their maximum, and no new refineries are being built, meaning that increasing demand cannot be met simply by pumping more oil from the ground.
Experts agree that the price of gasoline will continue to rise for a long time before it drops. So what do you do about increasingly higher prices?
The only practical answer is to improve gas mileage. Even though prices continue to go up, we can actually cut our real costs. This is not as hard as it sounds. Look into some of the gas mileage devices, and take the time to surf some of the websites listing gas mileage improvements ; you’ll find it is not unrealistic to save as much as 40% simply by changing how we drive.
