Why Gas Prices are higher in California than in other Parts of US
James L Hicks
Embry Riddle Aeronautical University
The rising gasoline and oil prices have become a global concern since petroleum has many uses around the world and yet its prices have continued rising for the last sixty years. This paper sought to find out why gas prices are higher in California than in other parts of America. The literature reviewed showed that West gasoline market dominated by California is defined by tight balance between supply and demand. Other factors found to be contributing the escalating gas price in California include isolation of the state from ...view middle of the document...
Nevertheless, most people still believe that the political crisis in Middle East is the main cause of high oil and gas prices (Clark, 2012). In most cases, oil and gas speculations and campaigns have also increased gas and oil prices in most parts of the world. Whichever the case, the level of supply and the volatility have had major economic effects, which are generally different in nature. While volatility causes liquidity and problems of uncertainty, the price effects affec long-term investment decisions and household budgets (Murray, 2012).
Until recently, natural gas had been considered as a natural resource that would change the face of transportation in America (Krupnick, 2011). Although relying on natural gases would drastically reduce carbon emissions, dependence on oil and lower transportation costs, Americans are worried by the increasing price of gas which is currently selling at 4$ per gallon (Garrington, 2012). They hold that politics characterized by the republicans and the Big Oil spin machines should be blamed more for the increasing price of gas. Ironically, the oil price in America defies the supply and demand law by rising prices when production is high even if demand remains relatively low. Moreover the big oil refineries in America are cutting back when gas prices are going high and global demand rising (Clark, 2012). This may be a reason to believe that although demand and supply principle is an important factor in gas and oil production, their impacts are realized differently at the global level. The escalating price of oil in America may be a result of the increasing demand in India and China that has resulted from the magnificent economic growth. Although gas prices have generally increased in America, the price is higher in California than other parts of US. Therefore one may argue that there is a higher demand for gas in California than the supply. Are there other reasons? This paper seeks to find out why gas prices are higher in California than other parts of America. While discussing the probable reasons, the discussion will also seek to offer a solution to the problem while suggesting recommendations to the policy makers.
The market of natural gas in America is divided between the physical market, individual delivery points around the country, the price paid for actual deliveries of gas and financial (futures market) (Krupnick, 2011). Gasoline prices are made up of four major components refining and distribution costs, crude oil price, taxes, and retail mark up (Garrington, 2012). The supply and additional costs of reformulated gasoline can in this case increase the prices of gas in California. Usually, the highest percentage of the cost is derived from the crude oil costs followed by refining costs, marketing costs and then gasoline taxes. Due to the reduced supply of crude oil in America, most states including California have to import more crude oil hence contributing to higher costs of gas in the region....