Posted by James Financial Services Inc

The Increase in Gas Prices & Taxes, & The Reason Behind The Increase

The Increase in Gas Prices & Taxes, & The Reason Behind The Increase

When you account for every penny, especially when there's not much money, fluctuations in the price of gas can destroy a well-executed budget. And the fluctuation associated with high gas prices can result in financial problems. Believe it or not, gasoline used to cost 17 cents a gallon, but those days are gone. Now, it's not uncommon to spend up to $3 a gallon, or over 17 times that, at the gas station.

Gasoline and other car bills are among our biggest monthly bills, especially if you have a long commute to work. And commuters in the United States are getting longer and longer as gas prices increase. More and more, our money is going to gasoline. It's no wonder that gas prices are fundamental economic factors that people talk about in their daily conversations.

It can be a bit abrasive when the cost of gasoline per gallon is close to what you would expect and increases the next day dramatically. Find out why gasoline prices have recently increased and how to take that fluctuation into account when planning your monthly budget or long road trips.


Why are gas prices rising?

Why are gasoline prices rising? To have an understanding of how to prepare for rising gas prices, it is also necessary to understand the factors that influence them.

According to the U.S. E.I.A. (Energy Information Administration), four main factors determine the retail price of gasoline:

  • Marketing and distribution

  • Refine costs and benefits

  • Taxes

  • The cost of crude, which is considered the main factor.


The cost of crude oil: an important factor

The price of crude oil is often a political issue. Since crude oil comes mainly from a limited group of countries, what happens to or in those countries often affects oil prices. For example, if global political events reduce crude oil production, demand increases, causing prices to rise. We have identified some global political factors that have influenced the recent rise in crude oil prices:

  • Cuts in crude oil production by the OPEC cartel and its partners keep demand high

  • Other geopolitical tensions

  • President Trump's decision to withdraw from the nuclear deal with Iran has led to a drop in Iranian oil exports.

  • The economic and political crisis in Venezuela, a major oil exporter, has led to a decline in oil production.


Gasoline Taxes

The first federal tax on gasoline dates back to 1932. President Herbert Hoover initially created the tax to help pay millions of dollars in federal deficits due to the Great Depression. Since then, federal taxes on gasoline have increased.

There are also state taxes on gasoline. Gasoline taxes may vary from state to state. Pennsylvania has the highest gasoline tax rate, at a whopping 58.7 cents per gallon, while Alaska has the lowest gasoline tax rate, 14.6 cents per gallon. These rates do not include the federal gasoline tax, which is in addition to state gasoline taxes and is currently 18.4 cents per gallon.

State tax rates vary for several reasons. One of the most popular uses of gasoline taxes is to work on road repairs. Its use seems appropriate because people who use the roads the most contribute to its repair by paying gas taxes. In addition, people who use the roads the most and consume more gasoline pay more for infrastructure. 

Counties can also impose gasoline taxes for additional income. Sometimes they use gasoline taxes to recover the money they don't get from the state to improve roads.


Seasonal Demand

The E.I.A. (Energy Information Administration) also indicates that seasonal demand can influence gas prices. In the summer and spring, after spending the winter in hiding, people come out more to do things they enjoy: staying outdoors and going on trips, which means more movement and usage of gas. And as people use more gasoline, the demand for fuel increases and higher demand affects distribution, which means higher prices.


A brief History of high gasoline prices

Many of the historical fluctuations in gas prices have been influenced by policy. A look at the history of gas prices gives an idea of why gas prices increase:

Natural disasters can also affect gas prices. In 2012, Hurricane Issac had a major impact on the energy structure of the Gulf Coast. According to the E.I.A. (Energy Information Administration), 93% of the 1,287,275 barrels of oil produced daily in the Gulf of Mexico were affected. Natural gas and petroleum were also affected. The loss pushed the price of gasoline up about 20 cents above normal at this time of year.

Another issue that can affect gas prices is distribution, which can be regional, as gas prices vary from state to state. In July 2015, gasoline prices in California were above $4 a gallon due to issues with a new refinery in the Midwest. Just as producers have production problems with normal consumer goods, refineries can also have gas production problems, causing delays. Refineries may also need maintenance, which could slow gas production. For example, refinery maintenance was the main factor behind the rise in gas prices in April 2014.

Sometimes a combination of all of these factors has a big impact on gas prices. In 2012, according to the E.I.A. (Energy Information Administration), there were reductions in the productivity of oil refineries in the Northeast, which led to a recovery in gas prices. E.U. also mentioned political tensions with Iran as one of the factors contributing to the rise in gas prices during this period.


Anticipate gas price fluctuations

Unfortunately, you have very little control over gas prices. There are so many factors influencing gasoline prices that it is probably difficult for the average consumer to know when gasoline prices will rise. But there are a few things you should keep in mind.

First of all, watch out for gas stations with high demand. If you're planning a trip for December in August, don't rely on current gas prices to determine how much you'll need to budget for gas. Note that summer prices increase by around 35 cents.

Second, it concerns world politics. If you hear of political unrest, natural disasters, or other factors that could affect oil production in areas that are major oil exporters, it could affect gas prices.

Third, pay attention to local politics. Local governments can also tax gasoline. If there is a utility bill that will increase gasoline taxes in the local Senate, you can anticipate the possibility of gas prices rising. Consider writing to local government officials to express your lack of support for a gas tax increase. 

The E.I.A. publishes a short-term energy outlook that analyzes factors that affect oil production and provides historical and forward-looking data on oil and gas.

You can also check out sites that attempt to anticipate gas prices based on federal and local price trends if you decide whether to refuel today or tomorrow.


Understanding how to prepare for the increase in gas prices and taxes that will help you.

We hope you now have a better understanding of the causes of high gas prices and how you can anticipate rising gas prices, as well as some new strategies in the toolkit that can help you save more on your gas budget. Gasoline prices will continue to fluctuate, just as the wind will continue to blow and the sun will continue to rise and set, but looking at crude oil prices and understanding gas situations can help you budget for the future.


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