In addition, the price of imported oil (North Sea Brent) rose to $110 per barrel thanks to political unrest in Ukraine, Nigeria, and Iraq. The Energy Information Administration expected average national prices to remain at $3.60 a gallon until May.
In early 2013, Iran started war games near the Strait of Hormuz. Nearly 20 percent of the world’s oil flows through this narrow checkpoint bordering Iran and Oman. If Iran threatens to close the Strait, it raises the fear of a dramatic decline in oil supply. Oil traders bid up the price to $118.90/barrel by February 8 in anticipation of such a crisis. Gas prices soon followed, rising to $3.85 by February 25. They rose again in August 2013 because oil prices hit a 15-month high that summer. That spike was created by political unrest in Egypt.
In September 2012, prices rose to an average high of $4.50 a gallon in California. That was because of supply shortage from two causes. The first was a power outage at the Exxon refinery in Torrance CA, which itself was caused by a heat wave. The second was a shutdown of a major north-south oil pipeline. These came on top of East Coast refinery shutdowns due to regular seasonal maintenance.
In August, prices were high as a result of Hurricane Isaac, which hit the U.S. Gulf Coast region on August 28, 2012. In anticipation of the Category I hurricane, refineries in the area shut down production. As a result, crude oil production lost 1.3 million barrels per day. This caused the average national price of gas to jump $.05 in one day, to $3.80 on Wednesday. Prices in Ohio, Indiana and Illinois rose even further, as the storm closed a pipeline that feeds the Midwest.
In February 2012, concerns about a potential military action, by either Israel or even the U.S., against Iran caused high oil prices. Second, some U.S. oil refineries were closing, according to an EIA report. Third, oil and gas prices tend to rise every spring, in anticipation of increased demand during the summer driving vacation season.
As a result, the prices for a gallon of gasoline hit the benchmark $3.50 by February 15, two weeks earlier than in 2011. By mid-March, the national average had jumped to $3.87 a gallon. That’s because the price of oil reached its benchmark of $100 a barrel two weeks earlier, as well. Oil went on to hit $109.77 by the end of February, before dropping slightly to $107.40 in mid-March.
In April 2011, fears about unrest in Libya and Egypt sent oil prices up to $113 a barrel. In May 2011, as oil prices dropped, the price at the pump stayed high. Why? Commodities traders were concerned about refinery closures due to the Mississippi River floods.
Gas prices in 2008 rose to $4.17 a gallon as oil prices skyrocketed to $143.68 a barrel, even though demand and supply were fairly constant. During the 2008 financial crisis, commodities traders drove up the price of oil, even though supply increased and demand fell. The EIA cited an increased flow of investment money into commodities markets. In other words, money that used to be invested in real estate or the global stock market was instead being invested in oil futures.
In the summer of 2009, the price at the pump again rose, despite the recession, which decreased demand. Commodities traders were the reason for both. Prices also usually rise during the summer vacation season, as driving increases. Finally, gas and oil prices also increase whenever there is concern about surging demand from China and India or a curtailment of oil supply. (Source: “Short-Term Energy Outlook,” Energy Information Administration.)
What Makes High Prices Drop
The summertime vacation driving season usually increases gas prices by an average of 10 cents per gallon. This price increase is despite the increased use of ethanol. Prices usually fall in the winter, since transportation needs are lower. This even offsets an increase in oil usage for winter heating in the northeastern United States.
What We Can Do About It
The most immediate thing we can do is reduce our usage of gas, either through driving less or increasing fuel efficiency. Surprisingly, the best way to increase fuel efficiency is to keep tires inflated.
Longer term, we can change our need for oil and gas by switching to alternative fuelvehicles. Urban dwellers can use public transit. Others can move closer to work to reduce commuting time.
Could this reduction in itself reduce the high price of gas? It could, if it were on a sustained basis over a long period of time. That’s because gasoline accounts for only 20 percent of each barrel of oil. Oil companies would still profit from the non-gasoline parts of their business. But even if consumers could conceivably stop 100 percent of gasoline use, oil prices might only decline 20 percent.
A Gas Boycott Won’t Work
Could a gasoline boycott halt rising prices, even if oil prices stayed high? Probably not by much. That’s because the other elements that go into the price of gas would take a long time to change. Taxes, which comprise 13 percent of gas prices, would require Congressional approval. Refinery costs (8 percent) and distribution costs (7 percent) are fixed and difficult to reduce.
A boycott of one brand of gas could actually increase prices since there would be fewer gas outlets. Those companies that were boycotted would simply sell their gas to those that weren’t boycotted, defeating the purpose.
A boycott of all gas companies would lower prices by 20 percent. Oil companies might raise prices on jet fuel, heating oil and other industrial uses to make up the loss. A boycott would not affect other pressures on the price of oil. These include the dollar’s decline and commodities traders. (Source: “Factors Affecting Gas Prices,” Energy Information Administration.)
The only real way to lower gas prices is to lower demand for gas and oil over a long period of time. This would work, since the United States consumes 25 percent of the world’s oil. This has increased over the last 20 years, from 15 million barrels per day (bpd) to 19.6 million bpd. A concerted effort might convince commodities traders that oil was a bad investment, thus allowing oil prices to return to pre-bubble levels.