News & Observer | newsobserver.com | Why is gas so expensive?

Published: Sep 01, 2005 07:28 PM
Modified: Oct 25, 2005 01:18 PM

Why is gas so expensive?

 

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The rise in costs may seem severe and relentless, but the truth is Americans keep driving them higher. Drivers bought more gas this summer than any other time in history, according to the Department of Energy. This demand stretched U.S. gas supplies, which were already thin, and exacerbated recent price gains. Such forces as rising world demand for crude oil -- what gas is made from -- and a string of disruptions to refinery output sent gas prices spiraling. In North Carolina, prices climbed about 30 cents since Aug. 1 to $2.56. But only about half of that comes from the rising cost of crude. The rest stems from tightening supplies, says Jacob Bournazian of the U.S. Energy Department.

Is it likely to get higher?

Prices may drop as much as 20 cents in the three months after Labor Day as summer driving subsides, analysts say. On the other hand, prices could rise further. Disruptions to the supply of gas -- or even perceptions of disruptions -- from hurricanes or new signs of instability in nations that produce and refine oil could send prices climbing.

Are prices really at record highs?

In straight dollar terms, yes. Gas has never been more costly. But when adjusted for inflation, gas prices today are second to the record prices of 1981, when gas peaked at an inflation-adjusted price of more than $3 per gallon.

What about the long term?

Most analysts say the days of cheap gas are over. Consumers can't expect gas below $2 again, Bournazian says, because demand for crude oil should continue to outpace production for the foreseeable future.

About 180 countries consume a total of 84.5 million barrels of crude oil a day, including about 20 million barrels in the United States. The world's roughly 60 oil producers make about 85 million barrels a day.

When will oil run out?

No one knows. The companies that control the world's oil fields do not release reliable data on them. Many experts guess that as much as half of the world's oil reserves are gone, with about 1 trillion barrels still below ground.

Some think that although reserves may last for several decades, the amount of oil they produce on a daily basis may diminish and fail to meet world demand far sooner.

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