The summer months are always so exciting. School is out, the pools are open, vacations are in full swing, and gas prices are higher. Well, that last one isn’t so exciting, but 3 out of 4 isn’t too bad. But why do gas prices increase during the summer? And quite honestly, why do gas prices increase at all?
Statistics have shown time over time that people do more traveling during the summer. Whether it’s for vacations, road trips, sporting events, or just day trips to the beach, people are more active in the summer. There is an increased desire to be “out and about” in the warmer weather.
Supply and Demand
In order to travel more, people need more gas. This results in a higher demand for gas due to it being used more regularly. Couple this higher demand for gas with a decrease in its availability referred to as the “supply,” and the oil traders are going to sell their stock at higher prices because it’s now more valuable.
Since crude oil prices account for just over 50% of the price of gasoline, its increase in price drastically affects the price of fuel for vehicles. The gasoline suppliers need to recoup their earnings caused by a decrease in their profit margin by having the consumer pay more for their gas. It’s somewhat of an endless cycle.
Trading of Commodities
Raw materials or any other agricultural property that can be sold on the market is considered a commodity. There are three types of commodities: agricultural, energy, and metals.
Gasoline fits into the energy category and can be traded and sold on specific dates in the future. One trader will sell a contract of his/her goods (commodities) to another trader that will go into effect on a date set in the future.
These contracts are priced at what a particular commodity, in this case, gas, will be worth on the agreed upon date. The trader will price the contract even higher to ensure he/she makes a profit just in case the market isn’t as good as expected.
Of course, this results in inflation – a sustained increase in the general price of goods and services in an economy over a period of time.
The Decline of the Dollar
One of the easiest explanations behind the increase in gas prices during the summer is the state or value of the U.S. dollar. Although this affects all commodities to a certain extent, it highly influences the price of gas.
If the value of the U.S. dollar declines, companies (along with individuals) will need to spend more money to retain the same amount of product they had previously. Again, this forces prices to increase and the consumer is usually the one “bridging the gap.”
What Can Be Done?
These three factors are often intertwined in relation to the effect of gas prices. But is there anything that can be done to help control this from reoccurring? Reducing fuel usage is an immediate action that can be taken along with using public transportation.
Moving closer to the places where you spend the majority of your time can be helpful as well, although this isn’t always ideal. Switching to alternative fuel vehicles can assist as well.
Of course, things will not change overnight. It is going to take some time before we see the “results of our labor.” So make it one of your goals this summer to be more fuel efficient by being mindful of how you travel. I think you’ll surprise yourself with how much fun you can still have.