Photo Credit: Evan Brooks
I always remember hearing, in a joking manner, about how something like the cost of a gallon of gas used to be a nickel. While some of the earliest records of gas prices may seem low by today’s standards, like how in 1931 the cost for a gallon of gas was as low as 17 cents, the truth is the real cost of a gallon of gas has remained relatively constant throughout our nation’s history. According to the Office of Energy, Efficiency andRenewable Energy, when comparing the price of gas from 1929, and adjusting them for 2011 dollars, the price of gas has remained around two dollars. The comparison from the government office means the burden of gas prices on Americans has remained relatively stable throughout the decades.
The cost of a gallon of gas when you go to fill up your car is mostly driven by the cost of oil. When the cost of oil rises, so does the cost of fuel for your car, and if your house uses oil or gas for heating, then the cost to heat your home will usually also rise as well. Now, there are a whole host of different oil and gas types, but for the sake of the article, oil and gas will be talked about in a more general sense.
Looking at the price of any product, including gas, the price point of said product is determined mostly by supply and demand. For gas, if oil is suddenly in low demand, but has a high supply, the cost per barrel of oil will drop until an equilibrium price is reached. An equilibrium price is the price point where demand and supply intersect, and when a sudden drop in demand occurs, the supply will decrease to meet the demand.
If a market gets flooded with a product, the product will cost less, to simply state the concept. The reason why certain minerals are so expensive is because they are either rare, or the process to obtain them is expensive. Humans have become really good at collecting oil and natural gas, and there just so happens to be a lot of both within the Earth, meaning the main cost of a barrel of oil is boiled down to the level of supply available vs the demand at the time.
As seen in the image titled, “what do we pay for per gallon of retail regular grade gasoline” by the U.S. Energy Information Administration, the taxes from the federal and state governments do have a role to play in the prices you experience at the pumps, although they do not take up the largest share of influence. On the federal level, “the federal tax on motor gasoline is 18.40 cents per gallon, which includes an excise tax of 18.30 cents per gallon and the federal Leaking Underground Storage Tank fee of 0.1 cents per gallon.” The state government “as of January 1, 2021,” had taxes averaging “30.06 cents per gallon.” Taxes, while making up a good portion of the gas prices we pay, remain relatively constant and are not the main contributor to prices rising. Rather, the cost of crude oil per barrel from oil exporting countries determine the prices at the pump, mostly following the rules of supply and demand.
Overall, the best way to combat fluctuating oil prices, and to save money when you fill up your vehicle, is to invest in a vehicle with better gas mileage. Better gas mileage is especially important when gas is cheap because cheap gas prices mixed with a car with great mileage translates into hundreds of dollars of savings for you. If you have a vehicle with better gas mileage, you will be less susceptible to the changing prices at the pump, as well as aiding the environment around you.
Evan Brooks is a fourth-year Business Management major with minors in Economics and Civil & Professional Leadership. EB916132@wcupa.edu