Why does gasoline cost so much?

I`m sure that when people regularly walk by a gas station they wonder why does the price of gasoline changes so often and many people keep asking themselves why does the price of gasoline have been going up, but it never goes back down significantly. The often variations of gasoline prices is due to the constant change of demand and supply and the gasoline price usually doesn't drop because the supply can`t match the demand.

The price of gasoline is directly affected by the laws of demand and supply which state that as price goes up demand goes down and as price goes up supply goes up. There are multiple factors affecting the demand and supply of crude oil which is directly affects its derivative, gasoline. Government regulations and taxes usually have high taxes for oil of which is usually a 15% of the display price on the gasoline stations. Other factors as natural disasters also have a great effect on the pricing of oil. For example, The hurricane Katrina, destroyed numerous oil drillers in the Gulf of Mexico and that caused a increased on the price of gasoline because the supply had gone down and the demand hadn`t change, so prices had to go up to reach a new equilibrium.

The law of demand explains that as prices goes up, demand goes down, but gasoline does not necessarily follows this rule as we have been experiencing. I know, as the price of gasoline has been going up the demand has also gone up. This happens because the worldwide demand for oil has increased significantly. On 1984 a gallon of gasoline could be bought for $.25 but in 2005 the price of gasoline had raised to $2.86 in 2005, so in 21 years gasoline price rose for about $2.60. As other countries in developing had increase their demand for crude oil and this has affect greatly the price on gasoline worldwide. For example, in the last 10 years the amount of cars in Lima has triple and that has greatly increased the demand of oil. As Lima and as many other countries have gone through the same, demand has greatly increased, but the supply haven't be able to keep up to reach a equilibrium where the prices would be considered affordable by most of its consumers.

I would say that a high price in goods such as oil is good because that motivates individuals and firms to get into the market with a product able to substitute oil and people would be push to be motivated towards new technology that could be friendly environment, but if the price of oil was to be lowered, the demand would increase greatly and the supply would go down because of the lack of profit motivation from firm to supply oil and there wouldn't motivation either to create new products that would substitute oil successfully.