Today on My MoneyLife^™ with Chuck Bentley

Monday, March 14, 2011

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Why Gas Prices Are Rising

Gas prices are well over $3 a gallon all across the country. It’s starting to eat into the family budget, and you’re going to hear a lot about who’s to blame.

Usually, oil companies come off as the bad guy, but the truth is, they have little to do with rising gas prices. If they did, prices would be sky high all the time. The fact is, they’re just as helpless as you are.

To understand why prices are rising, Investopedia.com put together a refresher course on Economics 101:

• First, it’s mostly about supply and demand. The supply of light crude, the kind that’s cheap to refine into gasoline, is going down. It costs more to refine heavier oil into gas, so prices are rising.
• Next, there’s demand. It’s going up—way up, as countries like China and India become more industrialized. More demand results in higher prices.
• Then there’s inflation. You can’t print $600 billion in paper money and not see the effects of inflation. The Federal Reserve’s Quantatative Easing policy is causing all commodity prices to rise, and crude oil is just one of them.
• Finally, taxes play a big role in the price of gas—about 20 percent, actually. The Feds tack on 18 cents a gallon, states another 21 cents, and local taxes add another 9 cents to your price at the pump.

The bottom line is, unless we dramatically reduce our consumption or increase the supply of oil, we’d better get used to paying higher gas prices.

The best way for you to fight back is to drive less and budget more. We can help you with that. I hope you’ll visit us at Crown.org.

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