Gas prices have been going up for years, and while there are some dips, the prices never go back down to what they were. With consumers continuing to pay the prices, they likely never will because whatever the ultimate reasons are for gas prices going up.
Companies want to make more money from you, so when there is a chance for a significant dip, it won’t be taken.
In 1994 in the US, the average price per gallon ranged from $0.998 to $1.100, with prices relatively stable throughout the 90s.
In 2004 prices ranged from $1.614 to $2.042, and then in 2008, we saw the highest prices on record with $4.114 and then fluctuations around $2 – $3+ until 2021.
All of this pricing is only the average US prices, so some regions will see even higher prices, especially where demand is high, like Washington and California.
Why Is Gas So Expensive Right Now?
In 2021 going into 2022, gas is expensive because the pandemic caused a drop in demand from consumers, which dropped production. Now that demand has increased again, the production and distribution of gas throughout the world are still trying to catch up with higher demand there are higher prices.
In January 2021, we still saw an average of $2.420 per gallon and increases throughout the year as the world opened back up and people started driving more, going on vacation, and just getting back out into the world.
By November 2021, prices had jumped more than $1 to $3.491 per gallon.
Other Reasons Why Gas is So Expensive
Gas comes from crude oil, a finite resource in various grades, light crude oil with limited refining needed, up to heavy crude oil that takes more time and money to become usable. We’re just running out of the easier light crude oil, and it’s taking more resources to refine oil now, and as our demand increases, we have to find new oil reserves.
Much of the world’s oil supplies come from certain countries, which have formed a group called OPEC+ that set levels on how much oil is produced each year and don’t often modify the production just based on short-term demand.
Their current stance is that they will gradually increase but are wary of another significant drop in demand that could cost them a lot if consumers stop needing gas and diesel.
Another reason prices are increasing is that there is simply more demand from more countries requiring gas; with India and China building wealth, more and more people have cars on the roads that didn’t in the 90s.
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With a decrease in light crude oil and increased worldwide demand, prices go up as countries fight to get enough gas.
Inflation and taxes are other causes of higher perceived prices. Some people may recall gas being $0.27 in the 1950s, but in 2020 money that would be $2.98 when adjusted for inflation with no other impacts.
Taxes on gas continue to go up, with the gas price being around 18% tax, going to both state and federal taxes.
History of Gas Price Increase
Every year there are price fluctuations for gas due to specific issues like major refineries shutting down for maintenance or if a hurricane is battering a region and stopping it from drilling oil for a while.
You’ll also see changes depending on the time of year, due to increased use of gas in certain months, as well as different requirements for quality of gas in different months, with some countries requiring higher quality less evaporative gas in summer, and this comes at a cost.
When Will Crude Oil Production Start Increasing?
OPEC+, which controls a large portion of the crude oil on the market and subsequently sets global prices, is increasing production and distribution of crude oil but refuses to increase production to a level that will lower prices enough for US consumers quickly.
The public response from OPEC+ is that they will slowly increase, but due to fear that the pandemic and global lockdowns could come back, they don’t want to be left with vast amounts of crude oil that they can’t sell.
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We’ve already seen multiple countries drop in and out of lockdowns or restricted travel, so it’s a reasonable but frustrating response.
Will Gas Prices Drop Soon?
Gas prices should drop as oil refineries start ramping back up and companies start producing more crude oil for distribution worldwide.
However, it may take some time and for complete pandemic restrictions to be lifted for oil companies to have confidence in delivering the oil consumers currently demand.
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It’s unlikely that we’ll ever see extremely low prices for gas, such as in the 90s, but the price should correct back down to the mid $2 range within the next year as long as there aren’t significant pandemic restrictions implemented around the world again.
Gas prices will continue to rise over the years as green taxes come into effect, encouraging consumers to choose electric cars by increasing taxes. Rental car companies are raising their prices as well due to the shift towards electric cars.
You will also see the overall cost of crude oil rise as refining becomes more expensive due to the quality of oil that is available.
Benjamin is a certified financial advisor, with over 10 years of experience in the industry. He is knowledgeable about various business and financial topics, such as retirement planning and investment management. Ben has been recognized for his work in the financial planning industry. He has also been featured in various publications.