Gasoline futures prices in the United States have climbed to their highest level of 2015, with prices at the pump again approaching the $3.00 per gallon level. Only six months earlier these prices in some areas of the country were dipping below $2.00 per gallon. (However, a year ago a gallon of gasoline cost nearly $4.00, which is close to the price where it has spent much of the last few years.) For the typical driver this will cost hundreds of extra dollars per year. For the nation as a whole it can cost additional tens of billions of dollars per year. Gasoline prices are usually advertised in such large signs at roadside fuel stations that it is easy for a typical driver to know the current rate and be aware of these recent price changes.
What is causing the price of gasoline to rise? The price of gasoline is essentially determined by the forces of supply and demand. A big component of gasoline is obviously oil, so a rise in oil prices is often the most important reason for more expensive gasoline. Increased driving is increasing the demand for oil, while depleting the stockpiles of gasoline (the American Automobile Association estimates that driving over the upcoming Memorial Day holiday weekend will be at the highest level in ten years). Recently lower oil prices have resulted in lower oil production while rendering hydraulic fracturing (“fracking”) and alternatives to oil-based fuel such as solar energy less attractive compared to suppliers that drill with conventional oil rigs. Recent refinery outages in the central and western parts of the United States have also shrunk gasoline supplies and driven prices up to almost $4.00 per gallon in Los Angeles. Because oil prices are denominated in United States dollars, the recent weakening of the dollar has helped drive up the price.
Diesel fuel has also been rising in price lately.
Keep in mind that not every American will suffer from more expensive gasoline. Oil-producing states such as Texas might experience a rise in revenue from higher oil and gasoline prices which could offset some or all of the losses experienced by these states’ drivers.
Some analysts believe that gasoline prices will soon stabilize below $3.00 per gallon and eventually drop back close to $2.00 per gallon toward the end of the year due to a worldwide oil glut and return of more refineries to operation. If United States sanctions against Iran are lifted, enough Iranian oil could flow into the market to also drive gasoline prices down substantially.