Demand for oil has also bounced back from the depths of the pandemic faster than oil production. A second major driver of rising prices is the costs of refining crude oil. These costs are also going up: Refineries have shut down in the past few years, outpacing the new refineries being built.
The most influential factor is the cost of crude oil, which is largely dictated by international supply and demand. Despite being the world's largest oil producer, the U.S. remains a net importer of crude oil, with the majority coming from Canada, Mexico, and Saudi Arabia.
Gas prices are dropping for a number of reasons, including an increase in gasoline production and a decrease in the cost of crude oil, which is the primary determinant for costs at the pump, according to Ellen Wald, senior fellow at the Atlantic Council.
The primary factors impacting gasoline prices are global crude oil cost (61%), refining costs (14%), distribution and marketing costs (11%) and federal & state taxes (14%), which are generally reflected in the wholesale costs that gasoline retailers pay to distributors.
What is causing inflation? In short, during the pandemic, we saw supply chain disruptions (decreased supply) combined with a massive increase to the money supply (increased demand). Basic economics tells us that less supply combined with greater demand means higher prices, explains Hoffer.
Although some regions of the country are already seeing gas prices fall below $4 a gallon, Rajendran predicted that the average national gas price would likely drift to higher than $4.50 before tapering off and reaching $4 a gallon or below by the end of the year as demand subsides.
For context, latest PCE Price Index data shows that the year-over-year inflation rate is at 6.3% as of April 2022. But in Morningstar's second quarter “U.S. Economic Outlook,” researchers predict that 2022 will have the highest rate of inflation, as measured by the PCE Price Index, at 5.2%, before dropping.
It's that they have very little control over it. Yes, policies and legislation can certainly play a role, but gas prices are largely dictated by oil prices and oil prices are dependent upon supply and demand.
The price of gas is controlled by various forces including the supply and price of crude oil, the cost of refining crude oil into gasoline, and taxes. According to the US Energy Information Administration, the costs are broken down in the following way: Price of Crude Oil: 52% Refining: 19%
Retail gasoline prices are mainly affected by crude oil prices and the level of gasoline supply relative to gasoline demand. Strong and increasing demand for gasoline and other petroleum products in the United States and the rest of the world can place intense pressure on available supplies.
In the United States and many other countries, prices have soared as pandemic restrictions eased and fuel demands increased. Labor shortages, shuttered refineries and the war in Ukraine have limited supplies, pushing prices even higher.
Where The U.S. Gets Its Oil. America is one of the world's largest oil producers, and close to 40 percent of U.S. oil needs are met at home. Most of the imports currently come from five countries: Canada, Saudi Arabia, Mexico, Venezuela and Nigeria.
Gasoline is made when crude oil is broken into various petroleum products through a process of fractional distillation. The finished product is then distributed to gas stations through pipelines. Gasoline is essential to running most internal combustion engine cars.
Simply put, the reason why government policy can do very little to bring down gasoline prices is that the price of crude oil is set on the global market. As a result, oil wherever it is produced, domestically or internationally, will find its way to the highest bidder.
Inflation is a measure of the rate of rising prices of goods and services in an economy. Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.
Data as of June 30, 2022. Western and Pacific states face the most costly gas in the nation, as the five states with the highest prices are California, Hawaii ($5.60), Alaska ($5.57), Nevada ($5.57) and Oregon ($5.49).
“But what we're really seeing is that things are just starting to balance out a little bit faster than we might have expected if interest rates hadn't risen so quickly.” Home prices in some US markets jumped even higher.
Is it cheaper to build or buy a house? As a rule of thumb, it's cheaper to buy a house than to build one. Building a new home costs $34,000 more, on average, than purchasing an existing home. The median cost of new construction was $449,000 in May 2022.
In the US, the Consumer Price Index rose 6.8% between November 2020 and November 2021, spurred by price increases for gasoline, food, and housing. Higher energy costs caused the inflation to rise further in 2022, reaching 9.1%, a high not seen since 1981.