eli5: why the current price of gas is much higher than in 2008 when the price of brent barrel was quite higher?
In: 226
because the oil companies are making record profits right now.
(and depending on where you live taxes might have increased a bit as well).
If oil companies expect the price of oil to go up, the price will immediately go up so they can pay for the higher price in the future.
Efficient Market principle. The commodity markets and stock market are priced based on net present value, not simply “today’s value.” The market has priced in an expected shortage of oil, and therefore also a respective increase in future price. Even if said shortage hasn’t actually occurred yet, prices have already adjusted to account for the publicly available information about the future.
Inflation means many other costs in fuel production are higher now than in 2008. So the total cost to the pump is going to be net higher even if the oil per barrel cost is lower.
Also greed.
In a nutshell, oil companies know they can get away with it. What are we going to do? Not buy gas? This is not political, gas prices are up all over the world. America is still lucky though, we have (on average) the lowest gas prices anywhere in the world. Most countries are paying over $10USD per gallon.
Gas prices aren’t that much higher, first off…
But the Federal Gas tax was increased since 2008. States may have also increased gas taxes.
There are other costs besides crude oil, like transportation costs (which are sky high due to supply chain issues, whether cargo/tanker ship, trains, trucks, etc), refining costs, gas station costs like rent and employee wages.
Two things. Firstly, inflation. As time goes on, the value of 1 US dollar decreases because more people have access to it. In 2008, gas cost less in dollars than it does today but if you adjust for inflation you’ll find that the average price of gasoline in July 2008 would have been $5.37, more than a dollar over the average price of $4.32 right now. So even though we pay “more” in dollars now, in 2008 we actually paid more for gasoline.
Secondly, demand. People need to get places, and we need gasoline to do so. Until more people start buying electric cars, the demand for car-safe gasoline will stay inelastic. This means that the price of gas is not a strong factor in determining whether or not you buy gasoline. Oil companies know this, and since they want to maximize profits they raise the price of gas accordingly.
Gas is a combination of oil, taxes, refinery margin, transport costs and retailer margin. You’re looking at one piece of the puzzle, when there are many.
Should also add that there is more than one oil price. Not everyone uses Brent. Though Brent, WTI, etc are usually similar.
Edit: probably state taxes plus transport / retailer costs. Refinery margin doesn’t look like its the answer.
1. Gasoline tax rates are higher than in 2008.
2. Labor and other materials required to refine and distribute gasoline are also likely higher (adjusted for inflation) due to the current supply chain disruptions and labor shortages.
3. Oil is used for lots of other things than just gasoline, such as plastics, etc., and therefore, ratio of supply/demand for gasoline is not necessarily the same as the the ratio of supply/demand of oil, and that ratio may have changed since 2008, with more/less supply of gasoline and/or more/less demand for gasoline.
Ill Never forget the day at Costco gas station when the pump capped me at $100, but just kept pumping gas.. I was a very happy man with 30gallons of gas for $100 🤤
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