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What Causes Gas Prices To Rise?

MINNEAPOLIS (WCCO) – The weekend attack on oil facilities in Saudi Arabia took out half of their oil exports, which is about 5% of the world's oil production.

Experts believe this could cause gas prices to jump 10 to 25 cents over the next few weeks. Already, they've gone up 7 cents in Minnesota since Sunday, even though Minnesota gets none of its oil from the Middle East.

So, why do gas prices go up? Good Question.

"It's the supply chain trickle-down effect," says Allison Mack, a gas analyst with GasBuddy.com.

In Minnesota, almost all the oil used to make gas comes from North Dakota and the tar sands of Canada. In the United States, 86% of the oil consumed is from domestic production.

"Most of our oil is domestic," says Gabriel Chan, assistant professor of science and technology at the Humphrey School of Public Affairs at the University of Minnesota. "It's really a big change that's happened in the last few years as we discovered fracking in North Dakota."

The U.S. does import about 11% of its oil. It comes from Canada, Mexico, Venezuela, Iraq and a handful of other countries. Saudi Arabian imports account for 1% of U.S. consumption.

"So, if it doesn't have to come from so far, then why are gas prices going up then?" asked one Minneapolis driver.

Chan says one big reason is oil markets across the world are interconnected.

"Even though we don't get a lot from Saudi Arabia, other countries do," Chan says. "So, a country like China may be buying a lot from Saudi Arabia and now that their supply has been taken down, China has to go somewhere else and they may go look for that supply where we're getting our oil from."

Given each country is looking for the best oil prices, that could drive up oil prices worldwide.

Experts say there is enough excess slack in the oil market in the U.S. that a short-term reduction in supply could be ridden out. The U.S. does have a strategic reserve, but that's most often used in crisis situations like a hurricane.

On Tuesday, Saudi Arabia said it would recover from the attacks more quickly than expected. That sent oil prices down, but not to pre-attack levels. Chan says even if the U.S. imported no oil from other countries, the U.S. would still be impacted by what happens on the international oil market.

"There's a very clear endpoint of when that would stop," Chan says. "It's when we stop using oil."

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