Q&A of the Day – Why are gas prices are so volatile?
Each day I’ll feature a listener question that’s been submitted by one of these methods.
Email: brianmudd@iheartmedia.com
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Today’s entry...One question I have for your Q&A is why do gas prices fluctuate daily? I don't understand if we are the world’s leading producer of oil now, why prices go and up down daily. How could it legally be that fickle? And I greatly appreciate you sharing your faith on the open-mic.
Bottom Line: First, thank you for supporting my willingness to be open about my faith. It’s appreciated and needed. About gas prices. The reason oil and gas prices fluctuate daily, regardless of where the oil is coming from, is because they’re commodities that are traded on open markets daily. The first, most important factor determining the cost of any commodity is the currency you’re using to purchase commodities. All commodities are US Dollar denominated – meaning the value of the US Dollar is paramount to determine buying power daily. Because the dollar’s value fluctuates daily, even if there wasn’t any change in the commodities themselves, there would potentially be variances in cost.
After currency, here’s how the cost of gas is determined generally:
- 65% based on price of oil
- 14% refining
- 13% taxes (Federal to local)
- 8% distribution/transportation
Oil’s a commodity that varies in price while traded daily. The costs in the refining process can also vary based on time of year and EPA mandates, along with supply and demand factors. Refined gas is itself a commodity that also varies in price daily once those factors are accounted for – that's the price your local gas station pays when they order gas for their station(s). Now, there is a significant advantage to being, the world’s leading producer.
As you’re aware we’ve had average gas prices exceeding $4 per gallon back in 2008. Adjusted for inflation it’s $5 per gallon in today’s money. With average prices currently below $2.5 per gallon despite the middle east tensions and the Venezuelan crisis – you're seeing the benefit of not being reliant on foreign countries daily.