Why aren't gas prices falling?

By Adam Groff If you're experiencing a bit of budgetary anxiety at the gas pump, you're not alone. Gas prices all across America are either on ...

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|Oct 16|magazine8 min read

By Adam Groff

If you're experiencing a bit of budgetary anxiety at the gas pump, you're not alone. Gas prices all across America are either on the rise or staying steady at well over $3 a gallon.

And, with most analysts predicting that gas prices will never drop below the 3-buck mark again, it's more important than ever to understand why prices aren't falling.

So, with gas gouging in mind, here are just a few reasons why the price at the pump isn't dropping as well as some of the things oil companies are doing to help cut costs:

Refining Hub Location

Over the past few years, oil production has skyrocketed in places such as Oklahoma, North Dakota, and Wyoming.

And, although you might think more oil production means more gas and thus lower costs, you're wrong. Why?

Well, it all has to do with the location of the refineries that turn all that crude oil into gasoline.

Refining hubs are usually found in largely populated areas, far away from the remote fields where the oil is extracted. Because of this, the crude oil has to be transported, which adds upwards of $20 to the cost of each barrel of domestic oil.

The Jones Act

An outdated cargo transportation law still in use today is also contributing to the fact that high gas prices are holding strong.

The Jones Act states that any cargo shipped between U.S. ports must be carried by U.S. vessels crewed by U.S. citizens.

And, because of these constraints, oil prices are $8 a barrel higher for the United States, which makes it cheaper to ship domestic oil overseas than to U.S. ports - as hard as that is to believe.

Oil and Politics

The price you pay at the pump has everything to do with global politics, especially considering the U.S. is oil-dependent on a global level. 

For example, a fifth of the world's oil comes from Iran and due to political turmoil in the Iranian region; an influx in panicked oil purchases has led to inflation in terms of global gas prices.

Fuel Efficiency Backlash

Due to the recent success and popularity of vehicle fuel efficiency, gas prices are rising, not falling. And, unless you're a high mpg or hybrid vehicle owner, efficient cars are directly affecting the high costs at the pump.

In other words, because there are more cars on the road that sip less gas, the state and federal taxes collected with every gallon of gas purchased are taking a financial hit. And, considering those taxes are used for highways and public transportation, it results in tax rate hikes for you, the consumer.

How Oil Companies are Helping?

When oil companies help themselves save money on oil production and refinement, they also pass the saving on to you.

For example instead of oil companies outsourcing their frack-water treatment to costly specialists, they're building onsite water treatment centers, thus cutting the cost of fracking over time.

Likewise, oil companies are increasing their research and exploration efforts when it comes to potential oil production sites.

This includes finding the optimal drilling location in relation to the amount of oil produced from each well drilled and in terms of the nearest refining hubs.

From hybrids to global politics, it's plain to see that there are a number of factors keeping gas prices from falling.

About the Author: Adam Groff is a freelance writer and creator of content. He writes on a variety of topics including personal health, gutter heaters, and the environment.