There are a lot of reasons. You have to break it out into base price and volatility. You also have to remember that until gasoline gets to a terminal rack, the last stop before a station, it is a commodity. From the time it's pumped out of the ground as crude until it arrives as unleaded at the terminal it has changed hands dozens of times, with a variety of speculation and risk management involved. An oil company can't "set" a price. It can influence a price, but any number of FTC investigations, pushed by "outraged" legislators (pandering to outraged constituents) have shown nothing but natural market practices at work. The oil industry knows that every AG and congressman with a soapbox will put it in the cross hairs at any point and has to behave fairly well and ethically.
Where base price is concerned, today's prices are actually more demand driven than previously, and more natural than previous OPEC efforts. IMO up to about $60 per bbl. China and India demand, and our shift in vehicle choices have had a notable impact that the producers have been trying to meet. . Beyond that... Speculation is playing a major role now. The GENERAL Unrest in the Middle east and Venezuela are playing a role. For Americans, the devaluation of the dollar is playing a great role and if you match graphs of WTI (West Texas Intermediate) and the value of the dollar it is uncanny. According to some, perhaps $25 per bbl. Nor have we fully recovered from Katrina.
Where volatility is concerned (major, but short price swings) particularly NOTABLE unrest in the Middle east and Venezuela spike prices as does any disruption in the distribution system. Our refining capacity is maxed out at peak periods. That is because the oil industry shut down many inefficient refineries in the 1980s at the end of deregulation and expanded capacity at newer refineries. As with any industry the goal is to have just enough capacity to meet the needs without extra. Of course, even with this efficiency returns beyond 5 percent were unusual for much of the 1990s (and many other periods in the industry) and investment financing was not as attractive as elsewhere. Refinery margins are still not all that great for the many relative hassles involved (the major integrated oil companies have shifted away from refining to some notable degree in the past decade or so). Bad decisions cost mega billions and can easily bite a refinery investor in the ass.
So now, the countries with the reserves are doing great. The oil companies are doing pretty good as the suppliers of the commodity. Refiners are doing well, but not nearly as well as E&P (exploration and production). Traders are doing well if they are smart (and stay smart). Credit card companies are doing very well off of merchant interchange fees which are percentage driven. Those who tax gasoline are doing very well. On the street, retailers make about $.07 per gallon GROSS profit and hope you go inside the C-store or use the car wash.
But, oil company profits can change overnight. Before 9/11 $20 per bbl was not that uncommon. Lets say a major recession hits. The US economy slows and unemployment rises. Fewer commuters, and more of a shift among those that do to public transportation. People switch from an 8000 lb Canyonaro to an economy car for the commute. People buy less Chinese plastic crap and other Chinese crap at the Mega-lo-Mart. The Chinese economy starts to tank and it's demand stagnates or drops. The Indian economy slows. The rest of the world economy slows. Demand drops dramatically. Oil drops easily below $50 a bbl. Opps. Suddenly any rash decisions made during the heyday bite you in the ass.
And, 1973 was no joke. The 1990s were the exception not the rule. I would say $60 bbl oil is probably a good base figure for a bit if demand stabilizes and production catches up. Like it or not, there is no magic bullet short of a massive change in US consumer behavior and a massive change in our transportation infrastructure. Alternative transportation and a lifestyle shift will have far, far more impact than alternative fuel. Ditch the big trucks for boring but sensible vehicles. Move to highly encouraged telecommuting. etc.
BTW, a lot of poster seem to be suggesting that the govt. nationalize the oil industry somehow. Well, first, we're not a notable producer, so there is not a lot you can do with these multinational oil companies who's reserves are located off our shores. Little opportunity to be a Chavez. Second, the highest prices we had up until now (adjusted for inflation) and only just matched were under govt regulation that ran through most of the 1970s into 1980. I have spoken with several nationally known consumer advocates and none of them even remotely wants things like price controls and other artificial market disrupters. We might see $7 a gallon gas if we add the brilliance of Washington onto the current situation.
BTW, "small oil" that is not making nearly as much money now downstream (refineries and below) would likely love the idea of price controls with allocation guarantees. They got so fat and happy under the previous price controls that when the industry was deregulated many couldn't handle the free market and didn't survive the transition
CNN has actually had some good pieces on the subject:
http://money.cnn.com/2008/03/13/news/economy/gas_gallon/index.htm?postversion=2008031404http://www.cnn.com/video/#/video/business/2008/03/11/dinnick.uae.oil.prices.cnn?iref=videosearchCharon
