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Why Fuel Prices Go Up

By Expert Author: Shiv Sadhawani

Numerous forces can influence the price of gas at the pump, but fuel costs are only one part in the vast web of global economics. Gas prices have an impact on other parts of the economy as well. There are immediate effects of rising prices - that feeling of stunned disbelief as the numbers climb and climb while you fill your tank. There are secondary effects as well. You might decide against a long road trip because the gas would cost too much. When it comes time to buy a car, you might decide against a gas-guzzling SUV and find something with better mileage instead. Price increases generally occur when the world crude-oil market tightens and lowers inventories. Also, growing demand can sometimes outpace refinery capacity.

Gas prices also vary from state to state for several reasons. Taxes are probably the biggest factor in the different prices around the country. Additionally, competition among local gas stations can drive prices down. Distance from the oil refineries can also affect prices -- stations closer to the Gulf of Mexico, where many oil refineries are located, have lower gas prices due to lower transportation costs. There are also some regional factors that can affect prices.

World events, wars and weather can also raise prices. Anything that affects any part of the process, from the moment the oil is drilled, through refining and distribution to your car will result in a change in price. Military conflicts in parts of the world with lots of oil supplies can make it difficult for oil companies to drill and ship crude oil. Hurricanes have damaged offshore drilling platforms, coastal refineries and shipping ports that receive oil tankers. If a tanker itself is lost or damaged, or leaks its oil into the ocean, that will put a dent in the market as well.

In some regions of the country, gasoline is required to meet higher environmental standards in order to reduce the amount of smog created by burning gasoline. Producing this cleaner-burning gasoline can cause problems in refining, distribution and storage, which increases the cost of gas.
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