Summer gas prices: UW experts weigh in

June 4, 2013

$3.93 per gallon. 16-gallon tank. $62.88 to fill up. This is all-too-familiar math for drivers who are grudgingly footing their gas bills. Many will direct their frustration at station owners, oil companies or the government. But what factors cause these summer price spikes?

Photo: Gas pump

 

To call gas-price fluctuations complicated is an understatement. But here are some of the biggest causes, according UW-Madison experts Sheldon Du, assistant professor of agricultural and applied economics, and Richard Shaten, faculty associate at the Nelson Institute for Environmental Studies.

Yourself and other drivers: More traffic during summer and around holidays creates “demand shock”— an event that temporarily increases demand and isn’t accounted for in normal supply. Limited by refinery capacity, the amount of gasoline the United States can produce doesn’t change or changes very slowly. When demand for gasoline suddenly increases, so will the price.

Clean air: Twice a year, the type of fuel you can buy at the pump changes from a winter blend to a summer blend, and vice versa. To reduce pollution and smog, particularly in densely populated and urban areas, the Environmental Protection Agency (EPA) started the Reformulated Gasoline Program in 1990. The EPA estimates that 30 percent of gasoline sold in the U.S. is reformulated. Summer-grade fuels have different, more expensive additives that burn cleaner and release fewer toxic pollutants. These additives also help keep gasoline from evaporating in high temperatures and prevent harmful chemicals from being released into the atmosphere. Since this gas is more expensive to produce, it is more expensive to buy.

Global crude oil prices: According to the U.S. Energy Information Administration, a refinery produces about 19 gallons of gasoline from each 42-gallon barrel of crude oil — the material that comes straight out of the earth. That’s 45 percent of each barrel going toward transportation fuels. The rest of the barrel is used for jet fuels, chemicals and other products.

Crude oil is traded on a global market, and as its price goes up, the price of gasoline rises, too. The price of a barrel of crude oil in 2002 was $26.18; in 2012, it was $94.05. This increase is a large part of why average gas prices have risen from $1.36 in 2002 to $3.66 today. Individual station owners have very little control over the price of gasoline because they have no control over the price of crude oil.

What you can do to avoid frustration at the station: Drive less and carpool when you can. But if taking a shorter trip isn’t an option, check out gas-price tracking applications for smartphones, such as Gas Buddy, and avoid filling up at gas stations right off the interstate by finding cheaper prices nearby. Use Google Maps and MapQuest to plan routes that avoid high traffic and let you achieve optimal efficiency for your car, time and money. Taking these steps can save precious pennies and reduce frustration from high gas prices, getting you on the road to your summer getaway.

-- Eric Anderson