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Why Gas Costs More: Demand Rising Among China's Middle Class

Posted Jun 01 2008 12:35pm
I recently took a full-time writing job 35 miles away from my house. I drive a Toyota Corolla, which gets 32 mpg in the city and 40 mpg on the highway. So far, it looks like getting me there five days a week costs about 40 bucks. But that's paying for gas at less than $3.90. I've heard rumors it could go as high as $6 a gallon before the end of the year! And the way gas prices have been rising so steadily, it doesn't sound too far-fetched.
You can't help but wonder -- what gives?

Today I found out from NPR's interview with Salon.com staff writer Andrew Leonard. In "What Accounts for the Spike in Gas prices," Leonard lays it on the line. (And no, it has nothing to do with George Bush.)

Essentially, four factors are worked into the price of gas:

1) The cost of crude oil
2) The cost of refining crude oil into gasoline
3) The cost of getting the gas from the refinery to the local filling stations
4) The cost of excise and sales taxes

And of these four factors, it's the cost of crude oil that accounts for most -- 75 percent of the total cost of gas!

So why is crude oil so expensive?

It's a simple matter of supply and demand.

In recent years, the middle class in China has reached a point where they can afford cars, and the gas that goes in them. The same is true in Brazil and India, just on a smaller scale. That's billions more people wanting the same gas we do while, at the same time, the supply of gas is stagnant.

What that tells me is that rising gas prices are here to stay. As populations and their economies grow, so will their driving. It's doubtful that the supply of crude oil is going to rise, and even if it does for a time, we all know it's destined to run dry.

I love my Toyota Corolla, but next time I buy a new car, it's going to be electric. My first pick -- the 2009 Tesla Roadster. Sure it's $109,000, but I like to dream big.
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