As the hottest days of the year roll around and students enjoy lazy days at the pool and a break from the hectic pace of the semester, there is one thing that can put a damper on the summertime festivities: gas prices.
The traditional spike in summer gas prices is back, and this year, we may be in for an unusually high upswing in per-gallon charges at the pump.
According to a federal Energy Information Administration report published in March, U.S. gas prices are expected to average $3.92 through September.
Local prices are rising steadily; Kansas gas prices rose an average of 8.5 cents per gallon last week, settling at a state average of $3.42 per gallon.
The volatile nature of gas prices is a source of confusion for many people. Here are five reasons that gas prices are making the annual climb this summer:
1. Traveling and vacations
Because of the sunny weather and more flexible schedules, people are naturally more inclined to travel to vacation destinations during the summer. This calls for an increased demand for gas, which pushes gas prices up. Inevitably, supply and demand come into effect.
When the demand for a good exceeds its supply, prices go up. Gas is no different, and since so many people depend on a full tank of gas in their cars, oil and petroleum companies can afford to raise prices without having to worry about a drop in demand.
2. Speculation of rising prices
There is an element of psychology in economics, especially when it comes to speculation. The expectation that prices could rise causes a ripple effect of demand. For example, if prices today are $3 per gallon and people hear speculation that prices could rise to $4 per gallon tomorrow, everybody is more likely to rush to the pump to get the lower price.
This rush can cause a problem, because the sudden, drastic spike in demand can cause shortages in gasoline, which in turn, pushes prices up.
3. Uncertainty in the world
Within the last year, the world has experienced revolutions in countries like Egypt, Sudan and the Democratic Republic of the Congo. These movements caused riots, political instability and uncertainty of the future.
Unfortunately, when international markets are experiencing turmoil, Americans will feel the effects, especially since we are so dependent on foreign energy sources.
4. Government energy policies
President Obama has been a vocal supporter for reducing America’s dependency on foreign oil, a commitment that both conservatives and liberals have applauded.
The problem with attacking the root of the problem, however, is that prices will rise in the short term while we look for more permanent solutions. Obama thus far has stuck to his campaign promises of minimizing off-shore drilling, a move that has most conservatives livid.
Until we can find a more permanent solution or we decide to drill more of our own oil, Americans will most likely be paying a lot more at the pump than they want to.
5. State tax rates
As technology continues to improve, cars become more and more fuel-efficient. When there are more Toyota Priuses roaming the roads that are getting 40-plus mpg, state tax revenue on gasoline falls.
Some states, such as California and New York, have added gasoline tax rates of 48.6 and 49 cents per gallon, respectively, according to a March 5 article by Jim Motavalli on Forbes.com. Gas companies have no choice but to absorb these taxes and increase their prices in order to maintain their profit margin.
Andy Rao is a junior in finance and accounting. Please send comments to email@example.com.