May 7th, 2018


Why gasoline prices go up in the summer

It's summer. Time for another round of crackpot theories accusing Big Oil of raking in obscene profits on the price of gas. *Sigh* Spare me the socialist rhetoric about greedy oil companies. There are three reasons gasoline costs what it does, particularly in summer.

The first driver of gasoline prices is TAXES. The average American pays almost 49 cents a gallon in excise taxes to State and Federal governments, regardless of what the price is. In addition, we have sales tax, which of course goes up as the underlying retail price goes up, so higher prices mean -- er -- higher prices yet. Because taxes.

The other two reasons have to do with supply and demand. Americans drive more in the summer, so there's more demand. This tends to make prices go up. Increased demand always raises prices.

But also, you have to understand that supply is largely fixed. You see, refineries spend the winter making gasoline in order to meet the summer demand. Then they spend the summer making home heating oil so they'll have that on hand when winter comes to the Northeast. Which means as soon as they switch over in the spring, the supply of gasoline is more or less finite. Fixed supply means prices go up yet more.

But fewer new homes are built with oil furnaces. Why can't we make more gasoline? Because refinery capacity is limited. Why not build more refineries? Why not, indeed? But then, environmentalists make it very difficult to license new refineries. Environmental rules by government and NIMBY pressure on the part of environmentalists restrict where refineries can be placed and raise the costs of building them. In fact, the last new refinery built in the US started operations in 1978 -- forty years ago.

So keep your crackpot conspiracy theories to yourself. The idea that Big Oil is making a huge windfall profit off your vacation driving is a fairy tale. If you want cheaper travel, try taking your vacation in the winter. Maine is lovely then, and the beaches aren't crowded at all.