Thursday, March 1, 2012

Why Does Gas Cost So Much?

Here's an interesting graph for all you nerds out there:

The point of this graph is that the price of oil is strongly correlated to the price of gas (yes, this graph is for the US, but same argument applies to Canadian gas prices, since our gas is made from the same world-market oil.).

If the price of gas and the price of oil were the same (ie. it cost nothing to make the gas from oil) then you'd see the dots lining up along the blue diagonal line. They don't; they are offset by a pretty constant 50 cents (per gallon) - sometimes you get excursions of 75 cents. Each dot represents a week, so you see that most of these excursions don't last long, and aren't consistent. This extra money goes to all the folks who make, ship, and sell you the gas. It's what it costs to do all these things (which themselves take oil, of course) + profit, and the total hasn't changed much over the time period of the graph (1995 - 2012).

It's pretty clear that most of the cost of gas is simply explained by the price of oil.

And that price is increasing, because the supply has maxed out, and because demand is increasing, mostly in Asia (over 50% of the world's oil now goes there). In this kind of market, countries are in a bidding war and prices are very volatile, and very unlikely to get significantly lower (unless they get so high that they induce recession - causing crashing demand - which is also bad).

Cue to discussion about Pattullo Bridge and the future of the trucking industry, please!


  1. another nerdy graph.

    Hoping that oil climbs to $1.50. As we Car free folks know, Higher oil and food costs are offset by the knowledge that Non-Car-free folks are paying ten-druple the rate.

  2. your graph better...