(MoneyWatch) Over the past two weeks, the average price for a gallon of regular gas jumped 12 cents to $3.81, according to the Lundberg Survey.
Gas prices are nearly 31 cents higher than a year ago. The biggest culprit for the rise in prices at the pumps is the $30 spike in crude oil that has occurred from $75/barrel in October to $105 today. The reason is that crude oil is the largest contributor to the price at the pumps.
Here's a break down of a $1 at the pump as of January 2012, according to the Energy Information Administration (EIA):
- Crude oil: 76 cents
- Taxes: 12 cents
- Distribution and Marketing: 6 cents
- Refining costs and profits: 6 cents
Don't blame Americans' appetite for energy on the recent move, because U.S. gas consumption is at 11-year lows (perhaps the only positive outcome from the recession). According to the EIA, global oil demand is expected to increase by 1.2 percent, led by China, India and other developing nations. In addition to an increase in demand, there has been a pickup in the economy since October. While nobody likes to pay more at the pumps, doing so when the economy is expanding and adding jobs at over 200,000 per month makes it a lot more palatable.
The move from $75 per barrel to $95 per barrel can therefore be attributed to positive developments around the world. But the last $10 of price movement is about fear over Iran and speculation that any problems in the Middle East would cause major disruptions in the world oil markets.
Most consumers don't really care why gas prices are up, they just want relief and someone to blame. According to a Washington Post/ABC News poll, rising gas prices are the president's fault. Nearly two-thirds of Americans say they disapprove of the way the president is handling the situation at the pump.
Anticipating the public outcry and to try to quell the criticism, the White House released "The Blueprint for a Secure Energy Future: One-Year Progress Report", which shows U.S. dependence on foreign oil imports has dropped by more than two million barrels a day since President Obama took office. As a percent of all U.S. consumption, foreign imports went from 57 percent down to 45 percent in the same period.
Politics aside, the most critical issue about gas prices is the impact on the U.S. economy. According to James Hamilton, Professor of Economics at the University of California, San Diego, there is evidence that an oil price increase that reverses an earlier decline has a much more limited effect on the economy than if the price of oil surges to a new all-time high.
Bottom line: If the Iran rhetoric dies down and we return to $90-$95 per barrel, there should be little impact on the overall economy.