We operate primarily on a "supply and demand" system. Well, to be fair, it is more accurately "the perception of supply and demand". (Think, for instance, of someone who hoards a large quantity of X in order to drive up the price. "Oh, my," people begin to think, "there is an X shortage!" Then he pulls out his supply and charges premium prices, not because there was a supply shortage, but because there was a perception of a shortage.) To figure out why gasoline prices are so high, one would think that we simply need to figure out why the supply does not meet the demand. Not so simple, I guess.
The first place we go is to the oil companies. Those dirty, rotten, greedy oil barons are trying to get rich off of us. According to studies, subtracting for the cost of doing the business, oil companies make 4 cents a gallon off the gasoline they sell to you. The gas station owner needs to make some, so that adds to it, but not much. And, of course, the government has their hand in it (far more than the oil companies). According to the U.S. Energy Information Administration, each gallon of gas includes 76% of the price for the crude oil, 6% for refining, 6% for distribution and marketing, and 12% for taxes. Look again. The biggest cost is the oil itself. The rest is 12% for the government and 12% for the profit of others (oil companies, truck drivers, gas station owners, etc.). Thus, given the current U.S. average of around $4.00/gallon, just over $3 goes into purchasing the petroleum while just under 50 cents goes to the government and 50 cents to the rest. Now, let's just say that the refiners absorb their own cost and the station owners, government, and oil companies decide not to take any money at all. Now you're paying $3.00 a gallon -- still high by last year's standards. It's not, you see, just the oil companies here.
The bigger problem is supply. Oil producers are charging a premium because the supply is not keeping up with demand. Some of that is due to the president's policies of solving our energy problems by improving our environment (see the government plan). Therefore, improving the supply locally is out of the question. Drilling permits are denied. Pipelines are denied. Off shore drilling is denied. The supply is out there, but we are not allowed to get to it. But if you think the president is to blame, think again. That's a single factor. Another is the sword rattling going on in Iran, threatening to shut down the Strait of Hormuz. Joint Chiefs of Staff chairman General Martin Dempsey told the media that Iran certainly did have the ability to block the Strait of Hormuz. Since 20% of worldwide oil goes through that strait, that would constitute a decrease of supply. Prices go up. But Iran is also not alone in the blame. One of the biggest problems is simply the information I just gave you. Armed with the very same information, Wall Street prepares oil purchase contracts betting that the price will go up. It's called "speculation" (because, as you can see, it is). Speculating that the price will rise, they contract to buy oil at a higher price, and your basis price -- the price of petroleum -- goes up. It didn't have to, but speculation makes it so. Again, perception, not reality.
So far we have oil companies and profiteers, an environmentally-minded president not interested in your daily commute, a nut-job president of Iran threatening the world, and Wall Street speculators artificially driving up prices. These are major inputs to the amount of money you dump into your gas tank on a regular basis. There is, however, one more. Can you think of what it is? You should. I just said it. You see, on the other side of supply is demand. The price of oil has been going up not because we've decreased the demand for it. Instead, it appears that we've spiked the demand for it. Oh, sure, some of that spike is sharp rises in oil use in places like India and China, but we're not helping much here. We're not very willing to change our demand, are we? You see, we're not mad at oil companies because they're raising prices. We're mad because they're threatening to block us from doing what we want. We want to drive. How dare they profit from that? We don't want to share rides or bike or walk. We want to drive. So as long as we continue to provide a high demand for their product, in essence agreeing to pay what they ask, why would we expect any change in the price? So while there are lots of places to lay blame, in another sense "We have met the enemy and he is us."
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