While the media reports record breaking profits for multi-national oil corporations, the real picture behind rising fuel costs isn’t that simple. The cost of fuel is truly a sum of all its parts and the variables that play into the equation are diverse. Everything from government coups in distant lands to extreme weather in the Gulf of Mexico to a lowering of the interest rate by the Federal Reserve have a deep impact on the price you pay for fuel.

Over half of the oil we use is imported (60%) and our dependence increases annually as we use up and/or limit the use of domestic reserves. The majority of the world's oil reserves are concentrated in the Middle East, and about two-thirds are controlled by OPEC members, including Iran, Iraq, Kuwait, Libya, Qatar, Saudi Arabia, and the United Arab Emirates.

Political unrest and instability is nothing new to this region and the slightest tremors in this region can send the price of oil soaring. Oil price shocks and price manipulation by OPEC have cost our economy dearly—about $7 trillion from 1979 to 2000 cost the U.S. economy—and each major price shock was followed by a recession.

Factors close to home can also play a role in what you pay. In 2005, when Hurricane Katrina hit the Gulf of Mexico, her devastating effects were felt nationwide. As Katrina damaged oil platforms, refineries, and pipelines, 90% of oil production along the Gulf was shut down. Within a week, crude oil futures reached a then record of $70 a barrel, wholesale gas reached another long surpassed record of $2.90 a gallon, and the cost at the pump neared $4.

There are less concrete factors playing a role too. With the recent slump in the housing market and a sagging economy, the Federal Reserve has repeatedly lowered interest rates in order to put the brakes on this recession. Every time the interest rate is lowered, more investors pull out of the equities markets and invest in commodities. This surge in the commodities market causes prices to soar. Speculation in these markets has pushed oil to a record $130+ per barrel. For perspective’s sake, consider that in October 2002–a full year following the attacks of 9/11–petroleum was trading at $22 a barrel. Congress could pass a law requiring speculators to take possession of their investment and greatly reduce the record breaking increases.

This surge in investment also affects other commodities, including corn, which also increases the cost of fuel for the consumer.

At $130 per barrel, crude oil is trading at $3.09 per gallon. Why is gasoline reaching $4 a gallon at the pump? We have to remember that petroleum being traded is raw crude oil and must be refined before it finds its way to the end consumer. In order for a barrel of crude oil to become a barrel of gas it must be transported to a refinery, processed, transported to a storage facility, processed with appropriate additives, dispensed to retailers, and stored again for the domestic consumer. At each step of this process there are scores of regulations and reams of bureaucratic paperwork to be completed.

In the first quarter of 2008, crude oil made up 70% of pump prices. Refining it into gasoline and retailing it added another 17% to the retail price. Taxes accounted for 13% of the price of gasoline.

In the end, the factors playing upon the cost of fuel oil are as varied as the uses of petroleum itself. While there are no quick and easy answers to this problem, there are some proactive steps you can take become more energy efficient and save yourself some money.

Click here to learn more about our energy saving tips.