What drives the price of gas? Market forces play key role in tumultuous summer season.

• Author: Orr, Vanessa
• Position: OIL & GAS

Lately, everyone has been feeling the pain at the pump. With gas prices topping $4.30 a gallon in most parts of Alaska, (and $7 in some!) even the most avid driver is considering pulling the car into the garage and leaving it there until oil prices come down.

There are a number of reasons why gas prices rise and fall, ranging from the supply of crude oil available to the demand for gas at different times of the year. Speculation about world events can cause prices for a barrel of oil to shoot up overnight; a strong American dollar can bring prices back down. At the retail gas station level, prices may vary because of the cost of transporting gas to the site, the amount of volume a station sells, or a price war between competitors trying to attract more customers.

Still, rising oil prices are not all bad, especially if you happen to live in a state where the taxes from the sale of crude oil help to support community infrastructure, social programs and more. And while it is expected that higher oil prices are helping producers, refiners and retailers to put more money in their pockets, the fact is, it's helping businesses affiliated with the petroleum industry take home more money too--money that is being spent in communities all over the 49th state.

IT'S HOW MUCH A GALLON?

At times this summer, it seemed like gas prices were rising faster than anyone could keep up; jokes were being made about the prices changing even during the time it took to fill up a tank of gas. Still, higher prices are no laughing matter to those struggling to make ends meet, or to those companies who need to buy foreign crude oil to refine for America's use.

"It's the same with any commodity--markets determine price," explained Kip C. Knudson, External Affairs, Tesoro Alaska. "You have multiple refiners and a multitude of retailers who are all competing with each other trying to attract customers. And you have a myriad of factors affecting these markets which are often impossible to quantify and difficult to nail down."

One of the most obvious market forces is the law of supply and demand. Despite the fact that the United States is the third-largest oil producer in the world, it imports about 60 percent of its oil from foreign countries as U.S. supplies continue to decrease. "Back in 1969, Tesoro Alaska built a refinery in Cook Inlet to process crude oil," explained Knudson. "At our peak, we were processing 225,000 barrels of oil a day. Today, we are processing 15,000...