GOOD READS

Why Americans Are Paying More At the Pump

Turmoil abroad and rising costs at home means consumers will have to shell out more for gas this summer

Gas prices--already the highest they've ever been in January and February--shot up nearly 30 cents over the past month to a national average of about $3.70 per gallon, sparking worries that a steep increase in fuel costs could crimp consumer spending and hobble an economy that is just starting to show signs of life.

Unfortunately, those fears may be grounded, experts say. On top of typical seasonal increases in fuel prices, a host of other factors threaten to disrupt supply chains and make financial markets nervous, pushing up the price of crude oil, which determines the bulk of what Americans pay at the pump.

Here are a few more reasons why even higher gas prices may be on the way this spring and summer:

Volatility in the Middle East. If it isn't Egypt, it's Libya, and if it isn't Libya, it's Iran. After several countries imposed sanctions over Iran's nuclear program, the fifth largest oil producer in 2010 halted shipments to some European nations, putting more pressure on oil supply and causing crude prices to spike. Since crude oil prices make up nearly 70 percent of the ultimate cost of a gallon of gas, even tiny disruptions to supply can cause a spike in prices when consumers fill their gas tanks.

[See today's best photos.]

"Under ordinary circumstances we would expect prices to climb incrementally from now through May," Gregg Laskoski, senior petroleum analyst at GasBuddy.com, told U.S. News. "What's exacerbating that is the situation in the Middle East. It's becoming a very dangerous waiting game."

Escalating tensions between Israel and Iran have also added to worries about the future of gas prices. An Israeli attack on Iran could push crude oil prices to $200 a barrel, if not higher, according to recent comments from Defense Secretary Leon Panetta, causing gas prices to spike to $6 per gallon or more.

Growing demand from Asia. The Department of Energy reported that the United States became a net exporter of refined petroleum products (such as gasoline) for the first time since 1949 last year. But if we have all this "extra" gasoline to be exporting, why are prices at home still going up?

A lot of it has to do with demand for gasoline, which has been declining in the United States for the last 10 years, while shooting up by leaps and bounds in places such as Asia and South America. As demand has tapered of here due to more fuel-efficient vehicles and, more recently, the weak economy, oil companies have had to broaden the scope of potential markets--bad news for American consumers.

"Oil companies that have increased their exports overseas essentially are depleting the U.S. supply [and] in doing so it's creating an artificially higher price for American consumers," Laskoski says. "When consumer demand is weak [in the United States], it's a very attractive option to export and get those healthier profit margins."

That trend isn't likely to change with a burgeoning middle class in Asian economic powerhouses such as China. According to the EIA, Asia surpassed North America as the largest petroleum-consuming region in 2008, gobbling up 25 million barrels a day in 2010.

Gasoline formulation requirements. Although crude oil prices account for the lion's share of what consumers pay at the pump, the process of refining crude oil and making the right formulations to produce gasoline costs money--about 7 percent of the price Americans pay per gallon.

Prices head even higher going into the summer months because refiners have to transition from a winter blend--required by law between Oct. 1 and April 30--to a more eco-friendly--but more expensive--summer blend.

"[The summer blend] has additional additives that add to the cost of producing the product," Laskoski says. "Not only do the refineries have to go through the process of ramping up production for it, but they're doing this at a time of year when consumer demand is starting to increase. This is one of the key reasons why the United States sees this cyclical up and down trend every year."

Specific state requirements can tack on even more expense for refiners and ultimately consumers.

[Read: Will Gas Prices Grow to $5 a Gallon?]

An improving economy. A growing economy is supposed to be good for everything, right? Not necessarily for gas prices. With economic growth pegged at more than 2 percent this year and a rosier employment outlook, more Americans will have the means--and confidence--to consume more goods and services such as gasoline.

It's not just consumer demand for gasoline, either. As the economy picks up, businesses will likely have to produce and shuttle more goods around, putting pressure on gasoline supply and prices.

Summer. Warmer weather and peak driving season usually coincide as Americans take vacations and hit the road. Coupled with an improving economy, more drivers should be on the road this summer, which will boost demand, and ultimately prices.

Taxes. If you take a look around the country, gas prices aren't uniform. A lot of the variation has to do with supply lines and transport, but a chunk of it has to do with varying state and local taxes. As government budgets have been strapped in the wake of the recession, some states and cities have looked to gasoline taxes to bridge budget shortfalls.

According to GasBuddy.com, Virginia is considering a gas tax hike, which would index the tax to inflation, generating an extra $124 million in revenue each year until 2018. Michigan, Maryland, and Iowa could also face increases on gas taxes.

mhandley@usnews.com

Twitter: @mmhandley

--Despite Inflation Forecast, Prices on Everyday Items Expected to Climb this Year.

--Dow breaks 13,000 for first time since '08 crisis.

-- Could High Gas Prices Hurt Obama's Reelection Campaign?



More From US News & World Report

Quiz: How well do you know India's economy?

Question 1

Which of these products is India the world's largest producer of?

Poll Choice Options
  • Wheat
  • Rice
  • Milk
1
2
3
4
5
6
7
8
9
10

Latest News

  • Steady PMIs, sluggish China put brakes on European shares

    European shares edged down on Wednesday after three days of gains as data showing China's economy was still stuttering offset some broadly reassuring European purchasing manager index (PMI) numbers. Data compiler Markit's monthly PMI figures, seen as good indicators of future growth, showed that while France's economy was still a drag, Germany was continuing to power the euro zone's recovery. In Asia, China's stock markets had fallen again and the yuan tumbled to 16-month low after a survey …

  • BSE Sensex hits third consecutive record high
    BSE Sensex hits third consecutive record high

    Reuters Market Eye - The BSE Sensex and the Nifty hit record highs for the third consecutive session on Wednesday on the back of gains in blue-chip stocks. The benchmark index hits a record high of 22,901.65. ... …

  • Gold hovers near 2-1/2 month lows
    Gold hovers near 2-1/2 month lows

    Gold was steady but near its lowest in more than two months on Wednesday, with stronger equities denting the metal's safe-haven appeal and outflows from bullion funds showing weak investor appetite. Spot gold was trading flat at $1,283.50 an ounce by 0640 GMT. But if we break that level, we are going to fall to $1,250," said Yuichi Ikemizu, branch manager for Standard Bank in Tokyo. SPDR Gold Trust, the world's largest gold-backed exchange-traded fund and a good measure of investor …

  • Rupee slips below 61 against the dollar

    Mumbai, April 23 (IANS) The Indian rupee fell below 61 against a dollar for the first time in more than a month Wednesday on continued demands for the greenback from oil importers and weakness in other ... …

  • Credit Suisse upgrades Mahindra & Mahindra to 'outperform'

    Reuters Market Eye - Credit Suisse upgrades Mahindra and Mahindra to "outperform" from "neutral," saying its four-wheeler autos and commercial vehicles will benefit from even a short-lived ... …

IN-DEPTH ANALYSIS & INTERVIEWS

  • This might well be India’s biggest Ponzi scam

    It was just too good to be true. Ashok Khital, 45, displays every symptom of a man who knows he's been conned. …

  • India's star studded football league

    High and mighty including Sachin, Salman & Sun Group buy ISL teams …

  • Leaderspeak with Rajesh Janey

    Rajesh Janey, President - India & SAARC, EMC shares many firsts in his life. …

  • Seed of Doubt

    Field trials have been allowed again in India. But two decades after their global launch, genetically modified (GM) crops remain controversial. …

  • Power Hungry

    Gujarat has power round-the-clock. Most other states do not. Why this will matter in the general elections. …

  • Etcetera

    The most keenly watched contest of the current general election will be the one for the Varanasi parliamentary seat, where the Bharatiya Janata Party's prime ministerial hopeful Narendra Modi squares off ... …

  • Economy vs Democracy

    As the country gets election fever, cash comes out of mattresses and turns into liquor, gifts, and food. But it is not bad for the health of the economy, reports Sarika Malhotra from the trenches. …

MARKET MOVERS

  • Most Actives
    Most Actives
    NamePriceChange% Chg
    16.69-0.16-0.95%
    UNITECH.BO
    14.42-0.16-1.10%
    SUZLON.BO
    120.80+7.40+6.53%
    FRL.BO
    69.05+7.10+11.46%
    MANGCHEM.BO
    54.50+1.75+3.32%
    HCLINFO.BO
  • Price % Gainers
    Price % Gainers
    NamePriceChange% Chg
    16.20+2.70+20.00%
    JAGSONPH.BO
    52.15+7.55+16.93%
    RUSHIL.BO
    14.80+2.01+15.72%
    SOUTHPET.BO
    23.00+2.65+13.02%
    KILITCHD.BO
    23.50+2.60+12.44%
    NELCAST.BO
  • Price % Losers
    Price % Losers
    NamePriceChange% Chg
    -10.95-100.00%
    4THGEN.BO
    -17.30-100.00%
    ALFAICA.BO
    -16.81-100.00%
    AMAL.BO
    -11.73-100.00%
    BORAX.BO
    -29.95-100.00%
    BRADYM.BO
  •  
    Recent Quotes
    Symbol Price Change % ChgChart 
    Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module.
    You need to enable your browser cookies to view your most recent quotes.
  • Recent Quotes News

    •  
      Sign-in to view quotes in your portfolios.