World News and Trends: Why the Rise in Gas Prices?

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Why the Rise in Gas Prices?

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Many Americans have been shocked to see gas prices recently shoot up to over $2 a gallon. And while this is cheaper than in many other countries (due to their heavier taxation), it’s still a shock to U.S. consumers. But why has gasoline (petrol in many other countries) suddenly become so expensive?

Experts note that a combination of factors, revolving around supply and demand, have led to higher oil prices.

One cause is increased competition for fuel. China, India and other developing countries are consuming far more oil and gasoline than they did only a few years ago, increasing demand for a limited worldwide supply. Another factor is unrest in the Middle East, with Iraq struggling to increase production in the face of repeated terror attacks against its oil-production infrastructure.

We also cannot ignore the effect of government actions on oil prices. The Russian government recently in effect took over the huge private oil company Yukos, Russia’s largest oil producer, hitting it with a $7 billion tax bill and sending up oil prices worldwide. The company’s assets will likely be swallowed up by a new state-owned company.

In the United States, various environmental laws dictate more than a dozen different gasoline blends in three different grades. Producing those blends drives up consumer costs. Also, due to various regulations and challenges, newer, more efficient oil refineries haven’t been built in the United States for more than 25 years. Legal and political challenges have also held up development of new fields to replace declining output in older, less productive fields, making Americans increasingly more dependent on volatile overseas supplies.

Another recent factor has been the repeated hurricanes striking the Gulf of Mexico, which has put a serious dent in U.S. production from offshore oil fields. Seasonal weather can also play a role, depending on how cold the coming winter is and how much oil will then go to heating homes.

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