Of course, that is the question that people ask me every day.  “Why does gas cost so much?”  Its second only to “whats the fastest way to double my money?”  The answer to number #2 is of course “put it all on red.”  (Also a good way to lose 100% of your money the quickest).   The answer to the gas question is a little more complicated so lets dive in.

Ok so its not really that complicated on the surface:

Crude Oil + Taxes + Refining Costs + Distribution = Gas Price

so the culprit can be summed up in one major chunk: crude oil.  As you may have heard the prices of crude oil are at an all time high.

Ok thats nice and all but why is it so dang expensive!?

Simple: supply and demand.  Here is the basic definition of supply and demand:

Strictly speaking, the model of supply and demand applies to a type of market called perfect competition in which no single buyer or seller has much effect on prices, and prices are known. The quantity of a product supplied by the producer and the quantity demanded by the consumer are dependent on the market price of the product. The law of supply states that quantity supplied is related to price. It is often depicted as directly proportional to price: the higher the price of the product, the more the producer will supply, ceteris paribus (“all other things being equal”). The law of demand is normally depicted as an inverse relation of quantity demanded and price: the higher the price of the product, the less the consumer will demand, ceteris paribus. The respective relations are called the supply curve and demand curve, or supply and demand for short.

As of right now, supply is flat and demand is increasing.  They are not pumping any more gas then they were in the past few years, but demand has grown worldwide by large amounts.  China’s oil consumption has grown by roughly 7% per year.  Other places such as India are also demanding more oil.

US dollar inflation + low supply(and high demand) = high crude oil costs

Thats your culprit at the pump, not greedy oil companies (though, I do not disupute that they are profitable…but thats my entire goal too so I cant fault them for that).  Now lets all ride our bikes.

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