Why is Gas So Expensive?

why gas is so expensiveBecause it’s such a valuable resource, consumers have the right to know why gas is so expensive. There isn’t a single cause though. There are actually several explanations.

Demands by Growing Economies

The emerging economies of China and India are partly responsible for the increase in oil costs. Statistics show that every year more people there are purchasing cars. This increases the demand in those countries. What happens is that the supply of oil is stretched out. This naturally increases the costs.

This doesn’t just apply to China or India. Whenever the world economy is up, the need for oil increases. This is just part of the natural law of supply and demand. So it would be correct to say that emerging economies are reasons why gas is so expensive.

Seasonal Demand

The weather also plays a part. During winter season in the Northern Hemisphere, the need for oil goes up. This is true in Europe and the United States. In this case the rise is temporary, albeit quite steep. When the winter season ends, the costs will go down to the pre winter level.

Lack of Refineries

People also need to realize that you can’t just dig oil from the ground and use it. Crude oil needs to be refined. These refineries cost thousands (if not millions of dollars) to set up. A company that invests in its construction will recuperate the cost from selling the oil. Because of their costs, there aren’t that many refineries around.

Another reason why gas is so expensive is that independent refineries have become scarce. Most now belong to the big companies. Thus they can control the output and the price.

Policies of Oil Companies

In some countries oil companies have a monopoly of the business. They can decide how high or low the cost will be. If they set it high, this will be reflected by their dealers. Sometimes the need to set costs high is due to operating expenses. But some corporations jack up the price just to make more money.

Low Value of the Dollar

In the United States, the value of the dollar plays a part in determining the cost. The lower the value of the US dollar, the costlier it will be to import.

War and Political Instability

International conflicts are also used to explain why gas is so expensive. Most of the world’s supply comes from the Middle East. However it’s one of the major hotspots in the world. Conflicts between Israel and Palestine can drive costs up. The war in Iraq and Iran’s nuclear programs also heighten tension. These factors combine to raise the costs of oil.

Scarce Resource

Oil is not an infinite resource. Even today, world governments are looking for alternative energy sources. The time will come when demand will exceed the available supply. But even now this worry contributes to its sky high costs.

As you can see, the causes and explanations for why gas is so expensive are numerous. With the need growing, there is little chance that it will go down.

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