Why Are Gas Prices So High?
There are many factors that contribute to why gas prices are so high but there are four main reasons.
The first main factor is the supply of crude oil. There are many different opinions about how much crude oil remains to be extracted from the Earth. One thing that everyone agrees on, however, is that the supply is finite. When supply decreases, prices rise. It is therefore inarguable that gas prices will rise as time goes by due to increased scarcity. One common argument to this is that we are constantly finding new places to drill for oil but that doesn't change the fact that the total amount to be found is finite. In addition, the oil fields that were the easiest and cheapest to access are either dried up or drying up. Future oil will be much more expensive due to increased costs. Also, new oil discoveries have been less than the oil consumed since 1980 so supply is decreasing despite the discovery of new, more expensive supplies.
The second factor for why gas prices are so high is the accelerating increase of demand. As nations with huge populations like China and India increase their technological infrastructure, they will be consuming more and more gas. The combined populations of those two nations alone is eight times that of the United States! The vast majority of those people are or soon will be disposing of their bicycles and buying automobiles. They will junk their wood stoves when they purchase homes with central heating and air-conditioning. So with supplies of gasoline decreasing and demand increasing, gas prices will certainly continue to get higher.
A lesser but important third factor that can cause higher gas prices is the trading of oil futures. Commodity traders know that crude oil prices are destined to rise so they buy oil futures. This creates an increase in current oil prices. Why should oil companies sell oil at prices that should be lower than what they will definitely get for them in the future?
The final factor that determines the price of oil is the declining value of the U.S. dollar. As the dollar becomes less valuable, crude oil sellers want more dollars for their oil. The dollar has lost nearly 50% of its value over the last decade due to many factors including the balance of trade deficit and the budget deficit. When the government spends more money than it receives in taxes, it prints more money. That decreases the value of all U.S. currency. When consumers purchase more goods and services from other nations than we sell to them, the supply of dollars in foreign banks goes up. That also reduces the value of the dollar.
In simpler terms, the reason why gas prices are so high is because:
There is less crude oil available every day.
More people are "bidding against us" for that oil every day.
Investors make money betting on future oil prices and their profits are added to the price.
We Americans and our government spend more than we earn and that devalues our money.
While we can temporarily somewhat decrease gas prices by driving less, recycling waste, spending less on foreign goods, selling more to foreign markets, and regulating futures traders, the best answer to decreasing oil prices is by developing alternative energy sources. Every dollar spent on solar, wind, nuclear, and other alternative energy technologies is one less dollar of demand for crude oil. And eventually, we won't need gas at all!
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