Why Are Gas Prices So High?

“Ugh . . . why is gas so expensive?” you yell at the sky as you cough up $50 to fill ‘er up.

Thankfully we aren’t back at that all-time record high when the average price of gas hit $5.01 a gallon on June 14, 2022.¹ But we were around $3.33 a gallon by the end of the summer, and we’re now at $3.19.² Not too bad—but many of us are old enough to remember when gas was far less expensive. No, we’re not talking about the 10 cents per gallon your grandparents paid back in the 1960s. Try five years ago (pre-COVID), when the national average was $1.94 a gallon.³

Before you toss your car keys into the trash and start biking everywhere (unless you want to), we’ve got some tips to help you feel less pain at the pump. But first, let’s dig into the big question on everyone’s mind: Why is gas so expensive these days?

Why Are Gas Prices So Expensive?

The answer to the age-old question, “Why are gas prices so expensive?” isn’t simple. A lot of factors have impacted why gas prices are so high—some long-term factors are still affecting us. Let’s look at the stuff that might be at play here one by one.

Inflation

First up, let’s talk about inflation. That’s the increase in the price of goods and services over time. It’s the reason why your grandparents say things like, “I remember when penny candy actually cost a penny” or “Back in the day, I could fill up my whole tank for five bucks.”

So inflation is nothing new. Prices on all goods steadily rise over time due to many factors, including the federal government feeding more money into the economy, a higher demand for goods and services, and an increase in production costs.

In an attempt to keep prices stable, the Federal Reserve aims to keep the inflation rate around 2% every year.⁴ The current inflation rate is sitting at 2.5% over the last 12 months, which is just over the Fed’s target rate, but much lower than it was back in 2022.⁵ Believe it or not, the rate of inflation on gas has been going down, falling 10.3% in the 12 months as of August 2024.⁶

So has inflation bumped up the price at the pump since 1968? Yep, and that’s to be expected. But are they going up as fast as they were in June of 2022? Nope.

Inflation is a big part of high gas prices, but not the whole picture.

International Instability

International issues overseas can have a significant impact on the price of gas here at home. Two recent examples would be the ongoing Russia-Ukraine war and the Israel-Hamas war.

Let’s be clear though: Gas prices were already going up before Russia invaded Ukraine in February of 2022. But the ongoing war between Russia and Ukraine definitely added to the mix. On March 8, 2022, the average price for a regular gallon of gas climbed to an all-time high (back then) of $4.17, leaving the old record from 2008 in the dust.⁷ Gas prices jumped 10 cents overnight and more than 50 cents from the week before!⁸ And we all felt it.

On that same day, President Joe Biden signed an executive order to ban the import of Russian oil, natural gas and coal to the U.S.⁹ Why does that matter? Well, because Russia is one of the biggest oil exporters in the world. It’s basically just a giant gas station (minus the day-old hot dogs).

Remember, gas prices eventually went on a long, crazy streak of record highs, topping out at $5.01 in the summer of 2022.¹⁰ Following that record high, gas prices have steadily fallen—settling into the $3 range this past summer. But yes, the Russia-Ukraine war is still ongoing with no end in sight. So we’ll see what the future holds for its effect on gas prices.

Turning to the Middle East, oil prices rose some (just 3%) after Israel was rocked by a surprise terror attack in early October of 2023—and the resulting war is still going on right now, much like the one between Russia and Ukraine. But unlike Russia and Ukraine, industry experts don’t expect the Israeli conflict to cause a huge impact on the cost of oil or gas.¹¹

Crude Oil Prices

Prices at the pump are impacted by the overall global cost of crude oil too. Like we said before, Russia is a big-time exporter of oil, and the war made oil prices spike to over $120 a barrel. Right now, the cost of a barrel of crude oil is around $72, which is comparatively low.¹²

The amount of crude oil available can increase and decrease over time for many reasons, including foreign government policy. The Organization of the Petroleum Exporting Countries (OPEC) is a group of 23 oil-producing nations that control 40% of the global oil production and 60% of the total international petroleum trade.¹³ They regularly meet and collectively decide how much oil to produce. That’s a lot of power, and it can have a drastic effect on prices, as we saw during the OPEC-led oil embargoes of 1973 and 1979, which gave rise to gas shortages and rationing.

Travel Demand

If you follow gas price trends, they historically go down in the fall (when we’ve all finished up our summer beach trips) and again in winter (when we’ve traveled for the holidays to Grandma’s and back).

Many states mandate “summer blends” of gas sold during those vacation months, which are supposed to be more efficient but much more expensive to produce. And the added cost is (of course) passed on to you at the pump. When Jack Frost comes around, the “winter-grade” fuel is cheaper, which saves you money. Another reason why Christmas is the most wonderful time of the year!

Because of this annual decline, gas price analysts are predicting that gas could come down below $3 a gallon this winter.¹⁴ Let’s hope so!

Taxes

It isn’t just the laws of supply and demand or international organizations that affect the price of gas. Our own federal and state governments get a piece of the action in the form of taxes on every gallon. Government officials say these taxes go toward road construction and maintenance, along with public transportation. But let’s be honest . . . how long has that pothole been out on your street chewing up your tires?

When you go to the pump, you pay an average of 51 cents in taxes on every gallon of gas you buy (18 cents for federal and an average of 33 cents for state taxes).¹⁵ The actual cost varies from state to state, with California having the highest gas tax at 68 cents a gallon!¹⁶ So the high cost of gas can literally depend on where you live.

Oil Refineries

Oil refineries have been a partial cause for the higher gas prices in the past few years. It’s one thing to have a low gas supply, but it’s another thing to have low capacity to refine the gasoline. We saw that hit hard in 2022, when gas inventories were at their lowest seasonal level since 2019.¹⁷

Part of that was because of President Biden’s focus on getting the country away from using gas-powered vehicles. He stopped work on the Keystone XL oil pipeline shortly after he took office.¹⁸ So gas companies had little incentive to invest massive amounts of money into building new refineries because they felt like they were being pushed out of business by clean energy laws.

But wait—there’s more to this story. Because 2023 brought a higher demand for gas, refineries started working at a fuller capacity to meet that demand. And now there are outages and maintenance issues from that push in production, which is another reason for the current lower fuel supply and higher fuel prices.¹⁹

What Has the Government Done to Lower Gas Prices?

The government has definitely contributed to the high cost of gas with those pesky gas taxes, but they have made attempts to ease the high prices (with varying degrees of success). Let’s walk through a quick history lesson on what the government has done to help with the high gas prices over the past few years.

Gas Stimulus Checks

You may remember the chatter about gas stimulus checks. Democrats talked about something called the Gas Rebate Act of 2022—a legislation that would give a $100 monthly rebate (and $100 for each dependent) to help Americans pay the higher gas prices.²⁰ Several states did get some form of stimulus check or rebate payment based on their tax filing status. But it didn’t run nationwide.

Emergency Oil Reserve

Back in November 2021, President Biden told the Department of Energy to release 50 million barrels of oil from the Strategic Petroleum Reserve (the U.S. emergency stash of underground gasoline), but it didn’t do much to ease up gas prices.²¹ 

Fast-forward to the end of March 2022 and Biden announced he would release a million barrels per day over six months from the Strategic Petroleum Reserve.²² The hopes were that this would soften that crazy price surge, but it didn’t really make a huge difference (and it severely depleted that reserve we need for real national emergencies).

Looks like it’s once again up to what we do in our houses and not what they’re doing in the White House. So, what do we do? Let’s talk about it.

How to Save Money on Gas

Do high gas prices stink? Yep, they sure do. But guess what? We’ve been in a worse spot with gas prices before—and there are things you can do to be better prepared and save money.

Start with these five tips to help:

1. Join gas rewards and cash-back programs.

You can sign up for gas rewards programs at places you already shop, like Kroger and Costco (just make sure they’re free rewards you’re signing up for and not credit cards). And don’t forget to check out cash-back apps like Upside to score some extra cash in your pocket every time you fill up at the pump.

2. Use apps to track the cheapest gas prices.

Speaking of apps, check out GasBuddy or Waze. Each of these will help you find the cheapest gas prices in your area without wasting gas as you drive around search for it. Some cash-back apps like Upside also contain maps highlighting cheap gas.

3. Make one trip.

Have a bunch of errands to run this week? Knock them all out in one trip instead of making eight different trips to the store during the week. It’ll save your sanity and your gas tank.

4. Carpool.

Okay, carpooling gets a bad rap sometimes, but hear us out here. Carpooling to the office, to school or to the kids’ soccer game is a great way to build some human connection while saving money on transportation too.

And having someone else drive you to work a day or two a week is a nice break. It’s kind of like having a chauffeur (without the black suit and hat—unless that’s their style).

5. Adjust your budget.

When gas prices go up, you’ll have to move some things around in your budget to make it all work. All you have to do is cut back in a few other budget lines to beef up your gas budget line. That might mean you start packing your lunch for work or ditch all but one TV streaming service. Do what it takes to get your budget in a good spot.

Get on Top of Your Budget

If you’re worried about gas prices right now, it’s probably because any increase brings back memories of when things became extremely high—and that naturally makes you wonder if it’ll happen again.

Here’s the truth: You can’t control rising gas prices, but you can totally control your overall spending. Make a plan (aka a budget) for your money and have confidence, no matter the ups and downs.

Our free budgeting app, EveryDollar, makes it easy to create—and stick to—a monthly budget. You can easily adjust numbers on the fly, and you can make a plan for all that saved money from carpooling and brown bagging your lunch to work. Sounds like a great deal, right?

Check out EveryDollar today!