The Oil Industry and the Factors that influence Oil Prices – Chapter 6: Comprehending Price Fluctuations

This is chapter number 6 out of 10. Read the rest:

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 1: History of the Oil Industry
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 2: Oil Prices Determinants
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 3: The Sentiment of the Market
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 4: The Origin of Oil and its Composition
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 5: The Drilling & Production of Oil

Two of the main reasons why retail gasoline prices fluctuate so much in theUSis dependent on:

1. Crude oil prices
2. The changing supply and demand of gasoline

 

As the economies of the world become more affluent, there is an increase in the demand of gasoline as more people are able to afford cars and travels. This ever increasing demand in the global market is putting an enormous strain on the supply of gasoline and related petroleum products. Furthermore, in the light of stable crude prices, gasoline prices are affected by competitions among the retailers as well as changes in seasonal demand.

The demand for gasoline is during spring and summer. It drops during winter as people drive less. This seasonal difference is around 5% higher during summer as people prompted by good weather go for vacations and thus drive more or travel by air more. Therefore, it is not surprising to find that during the month of January to summer, gasoline prices go up by 10 to 20 cents.

Organization of Petroleum Exporting Countries (OPEC):

OPEC members account for 40% of the world’s production of crude oil. These countries also possess more than 60% of the world’s proven oil reserves. They comprises of 12 countries that organized themselves into a cartel in 1960. The aim of OPEC is to try to set oil prices at a target by controlling production through a quota system. As such, OPEC’s countries are the only countries in the world with spare production capacity. Through these measures, OPEC hopes to achieve maximum profitability for its members as well as making crude oil prices stable. As more countries are able to go into oil production through technological advancement and development of new fields, OPEC’s influence on the crude market is being diminished. Having said that, OPEC is the only group of producers who can react quickly to changing demand by decreasing or increasing production. In this manner, OPEC still has immense control on crude oil prices. 

Read The Oil Industry and the Factors that influence Oil Prices – Chapter 7: The Supply of Crude Oil and Its Prices
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 8: The Components of Gasoline’s Retail Price
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 9: When Supply and Demand isn’t the answer
Read The Oil Industry and the Factors that influence Oil Prices – Chapter 10: Conclusion