Why do Gasoline Prices Fluctuate?

The price of gasoline affects most consumers’ cost of daily living, and also triggers a far reaching economic impact across numerous industries. Not only do gasoline prices have an immediate effect on individuals’ living expenses, they also influence consumers indirectly through logistical costs incorporated into the pricing of other consumer goods, the types of vehicles that are demanded of the automobile industry and the possibly prohibitive cost of travel. The price of gasoline fluctuates because it is influenced largely by dynamic factors such as the price of crude oil due to supply and demand, environmental factors and government regulations.

The largest determinant of gasoline prices in the United States is the going rate per barrel of oil established by Organization of the Petroleum Exporting Countries (OPEC), a conglomerate of twelve oil exporting countries which are major producers and hold a majority of the world’s oil reserves. OPEC members are subject to production limits, which are imposed by the organization to maintain target prices for oil across the world. Oil prices are determined based largely on supply, demand and the types of oil available, but also environmental factors which affect the production and distribution throughout any level of the supply chain. For instance, Hurricane Katrina caused many offshore oil drilling ventures to shut down and also impacted refinery and pipeline operations, causing a dramatic spike in the price of oil and thus gasoline. The cost of crude oil determined by OPEC is based partly on the level of supply and demand, but the mere anticipation of a shortage is enough for consumers to see a jump in prices.

Governmental requirements also affect the price that consumers pay at the pump. Environmental standards requiring cleaner burning fuel in areas such as California, Milwaukee and Chicago generate demand for a specialized product that is produced in limited supply, contributing to the higher gasoline prices in such areas. Geographical differences in gasoline prices across the country are also attributed to varying state and local tax requirements, unexpected disruptions, the level of competition among providers and logistical cost differences such as the distance that a product must be transported to reach the location.

The ultimate price that consumers pay for gasoline is a summation of the accumulated costs associated with producing and delivering the final product to the consumer. The going rate of crude oil accounts for a majority of the price consumers pay for gasoline. The final price that consumers pay for gasoline at the pump also reflects the cost of refining, taxes, distribution and marketing costs as well as individual gas station markup.

About the Author: Greg Chapman, of Greg Chapman Motors, is a leading used car dealer Austin has depended on since 1959. For more information please visit Greg Chapman Motors.