Why Is Gas so Expensive?


Quick Answer

Gas is expensive because commodities traders bid up the price of gas contracts on the commodities futures markets with the intention of selling them for profit. Additionally, the price of gas is high due to the high prices of crude oil.

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Full Answer

About 72 percent of the cost of gas can be attributed to the crude oil costs, which tend to be volatile, while the remaining 28 percent comes from refining, taxes and distribution, which account for the stable part of the overall gas price. The costs of gas and crude oil are affected by the current supply and demand. Through the commodities futures markets, investors try to predict the price of gas in the future, and they bid accordingly. The higher the prediction, the higher the bid. This process leads to the formation of an asset bubble, which means that the financial burden ultimately falls on the consumer in the form of expensive gas.

As of 2014, the price of gas tends to rise every spring because oil futures traders acquire gas contracts during that period in anticipation of the inevitable jump in prices during the summer period. The rise in gas and crude oil prices over a longer period of time can be attributed to the decline in the value of the dollar because oil is denominated in that currency.

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