Why are Gas Prices So High?! Fairly, this is a question that seems top of mind for pretty much everyone. So we thought we would equip you with some basics to help answer this question should it come up with your family, friends, neighbors, or you are taking your role as a Utah Energy United ambassador zealously and proactively – educating everyone you can! What We Pay for in a Gallon of Gas • First and Foremost, the biggest price driver by far is the cost of crude. The cost of crude is set by the global market, primarily by supply and demand. Typically, when the cost of something goes up, the demand drops; basic Economics 101. That demand response has been slow in arriving, although we started to see demand easing at the end of July. This meant, however, that demand didn’t drop for many months to let supply catch up and we have been very tight in crude supply, which drives up the price. • Refining is the second largest cost driver but not only are U.S. refineries working at full capacity, but the U.S. is also losing refining capacity, leading further to supply crunches. Read more below on how these challenges play into supply, demand and pricing. • Gas Taxes are a very small percent of the total cost at the pump, so policies to provide for gas tax holidays will hurt the transportation budgets that those taxes go to fund, without significantly helping to drop prices at the pump. The Utah gas tax is approximately 32 cents/gallon, and the federal tax is 18.4 cents – the total tax is about 50 cents/gallon – mid-range compared to the rest of the nation’s rates. Crude Oil Supply Has Tightened Dramatically • When the global economy shut down due to COVID, demand for fuel plummeted and so both refineries and crude production responded by also turning down. But crude production isn’t easy to simply turn back on quickly – not only are we facing the same supply chain challenges (with 200-300% price increases on steel and parts) and labor 12 UPDATE
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