America has largely achieved the right to claim energy independence, since our energy exports have surpassed net imports; so why is gas so expensive in Chicago?
Yes, that is a “7” in the picture, we have gotten to a point where Chicago stations are charging $7.29 for a gallon of gas; granted, few people use that grade of fuel, but even Regular is $6.59. At that rate a delivery van will use $100 to travel about 200 miles, and a tractor-trailer will move less than 90 miles.
We were told oil was a commodity, of which, the world had a limited supply. That in but a few decades we would be running out, and leading up to that day, prices would soar. As oil steadily rose to over $100/ barrel in June of 2014, it became easy to accept, however unpleasant, that higher prices were going to be taking an ever-larger chunk out of our budgets. Then a strange thing happened; the price of a barrel of oil plunged to $45, yet gas prices in Chicago stayed high even as crude prices fell.
Now that oil prices are at an all time high it’s easy to understand seeing record prices at the pump. The question is Why when the cost of oil fell did Chicago continue to see gas prices that were still near their record highs? When the cost of crude oil goes up it is easy to understand increases at the pump; but when oil prices fall the price of gas barely moves.
Why is gas so expensive now?
Russia invaded Ukraine and the U.S. announced a formal ban on all imports of Russian energy. While America bought very little Russian oil, Europe depended on the flow of oil and natural gas from Russian and were their largest customer; so when the EU announced a ban on imports of Russian oil the global market found itself with demand greater than supply. One doesn’t need to be a Nobel-Prize winning economist to understand how that supply imbalance caused Crude prices to soar.
Why are gas prices high in Chicago, since we don’t buy oil from Russia?
The price of all oil is set by global commodity markets, today that price was $118 no matter from which country it’s purchased. Record high oil will result in record high gas prices.
Why can’t they just pump more oil?
Russia is only a part of the problem. Covid shut-downs resulted in many companies shutting down, or greatly reducing operations. “They can’t find people, and can’t find equipment,” “It’s not like they’re available at a premium price. They’re just not available” said Robert McNally, president of consulting firm Rapidan Energy Group.
It is also not necessarily in the interests of oil producers to increase supply. Higher prices can result in greater profits despite selling less product. ExxonMobil (XOM) last month announced first quarter profits of $8.8 billion, a figure more than three times last years the level.
Why does Chicago have the highest gas prices of any major metropolitan area in America?
First off, we don’t, Cities in California are higher. In fact gas in Alpine County, on the Nevada border, will cost you $7.80 per gallon. That said, as I travel to other cities and fill-up my tank, I can’t help but notice how much lower others are paying for the same gas. The cost we Chicagoans pay to fill our vehicles is based on the global market price of oil, the cost of refining, and the added taxes. It is the combination of these factors that create that create the inflated cost.
The price of oil is, and should be, the largest factor influencing the price of gas, however it is far from the sole element effecting the price you pay at the pump. We do not fill our cars up with crude oil, gasoline is a product produced in refinery by breaking down and separating oil into components according to their boiling point and density. The lightest fractions, which includes gasoline, vaporize and rise to the top of the refining tower, there the vapors are carried through pipes where they condense back to liquids. The resulting gasoline then undergoes additional processing before being pumped into tankers for delivery. The cost of refining is not directly tied to the price of oil; so it should remain rather level. Chicago does not refine its own gasoline; therefore it should not be a reason that prices are higher here.
The amount of tax charged per gallon of fuel is one of the principle reasons Chicago’s prices consistently among the most expensive in the country. There are several layers of taxes, the most common are the “motor fuel taxes” these are based on a set cost per gallon. The revenues from These taxes were designed to cover the cost of maintaining roads, and related transportation expenses. The state of Illinois, Cook County and City of Chicago all have roads to build and maintain and these expenses, by way of taxes, are passed on to motorists. no different than any other state. In addition to set per gallon taxes, On top of that, additional excise taxes are charged by Illinois, the county and of course Chicago. The amount of these taxes vary from state to state, with Illinois coming in at number five. Illinois is one of the few states that additionally tacks on sales tax charged as a percentage of the total cost of your purchase. As a result as gas prices rise, so does the tax.
This all goes to explain why fuel prices are high here, but why is gas so expensive? When crude oil moves upward we quickly see escalating numbers showing up on signs, but when the reverse is true, our cost at the pump seems to barely budge.
It’s interesting to understand why is gas still so expensive at Chicago area pumps? Will the high gas prices spur the spread of electric vehicles, and if so, will that reduced demand for gas cause prices to drop?
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