Below you'll see a recent chain email that blames big oil for high gas prices. If you slept through Economicsit's time to wake up and understand the factors that are really driving prices at the gas pump. To learn more, be sure to check out our Economics Basics tutorial. If they are not selling any gas, they will be inclined to reduce their prices.
Common Factors That Affect Oil and Gas Prices Oil and gas play a key role in running our world, from powering homes and businesses to keeping the transportation infrastructure running. That reliance on petroleum makes price fluctuations in the oil and gas industry easy to spot for consumers.
We see it at the gas pump every time we fill the tank. We see it on our utility bills when heating oil prices fluctuate.
Those pricing changes may seem arbitrary, but several factors actually influence increases and decreases in oil and gas pricing. Oil and gas pricing relates to much more than simple supply and demand. Crude oil is the natural state of the oil when it comes from the ground. That crude oil then goes into refineries, where companies process the oil into various types of fuels, lubricants and sources for petroleum-based products.
The price of gasoline, heating oil and other end-user products tends to shift with the price per barrel of crude oil.
When crude oil costs more, it naturally costs more to produce those other products. However, other factors can come into play during the refining process that influence end-user pricing of oil-based products.
This includes outages at the refinery, market demands for a particular petroleum product and seasonal variations. Current Crude Oil Supply As with any commodity, the supply influences the price of oil and gas.
An ample supply means the price per barrel drops. When supply is low, the price per barrel increases. The supply levels vary depending on current production and current demand. The Organization of Petroleum Exporting Countries accounts for about 40 percent of all crude oil production in the world.
OPEC exports about 60 percent of all internationally traded petroleum. With such a large share of the global oil output, OPEC has a strong impact on the current supply. The organization can restrict or increase the supply to affect global pricing. Individual countries that are part of OPEC can also have an impact on supply.
OPEC establishes production targets, but participating countries may be unwilling or unable to meet those quotas, thus influencing the oil prices.
While OPEC does have a strong influence on the supply, the United States has stepped up production in recent years by doubling its shale oil production from to The increased supply makes the price per barrel drop. OPEC nations stopped limiting production in July oflargely in response to that increased production in the U.
This decreased the cost of oil even more, due to the increased supply in the global market. Quality of Crude Oil Supply Supply relates to not only the amount of crude oil available, but also to the quality of that oil.
All crude oil gets a grade based on viscosity and impurities. The viscosity rating ranges from light to heavy. The impurity level of crude oil gets labeled from sweet to sour, with sweet oil having few impurities and sour oil having lots of impurities.
Demand for Oil Like other industries, the demand for crude oil affects overall pricing. Demand for oil continues to grow globally, particularly for transportation needs. China, India and other countries are seeing increasing numbers of vehicles on the road due to an expanding middle class.
More vehicles on the road means those countries will consume more gasoline, which increases demands for crude oil. While the demand may decrease slightly when gas prices increase, most people continue using petroleum products, keeping the overall demand relatively high.
Alternative fuels, fuel-efficient vehicles and other methods of decreasing fuel consumption are typically slow to affect change and have minimal impact on the overall demand for oil.
Even when individuals lower fuel consumption with these methods, the increased number of consumers using gasoline prevents a decrease in demand. Certain times of the year see a temporary increase in demand, which drives up the price per barrel.
Those increased periods of demand typically correlate to certain activities or events.
Cold winter months may force an increase in gas and oil prices due to the increased consumption of heating oil for homes and businesses. During the summer months, more people tend to travel, which causes an increase in demand for transportation fuels.9AKA-8MF3: Why You Can't Influence Gas Prices Item Preview.
However, there are fundamental drivers of the price. The general rule, according to the EIA, is that about two-thirds of your cost of gas at the pump is determined by crude oil cost. The rest is a combination of taxes, refining, distribution and marketing.
These are ultimately just some of the 11 factors we determined influence gas prices. Neither big oil companies nor consumers are responsible for oil prices: it's basic economics.
Find out why you can't influence the price of gas. Barry Nielsen • Nearly 20 years of experience in the mortgage and lending business • Owner and operator of MortgageGraphics, Inc., a loan analysis tool Why You Can't Influence Gas Prices.
However, there are fundamental drivers of the price. The general rule, according to the EIA, is that about two-thirds of your cost of gas at the pump is determined by crude oil cost.
Below you'll see a recent chain email that blames big oil for high gas prices. But if we take the principles of free market economics into account, it becomes clear that the author of this email suffers from a woeful lack of understanding when .