Factors Affecting Gasoline Prices

by : Bob Jent

In the United States, we consume millions of barrels of oil daily in the form of the gasoline that powers our vehicles, jet fuel for air travel and a multitude of other oil reliant products. When we think about oil prices, we typically get no further than begrudgingly recounting how much we spent on our last fill up at a gas station or contemplating the ever fluctuating price per gallon. However, numerous factors influence the price that the end consumer pays at the gas pump, a few of which we will observe here.

The Organization of the Petroleum Exporting Countries (OPEC) establishes the going price per barrel of oil, based on an analysis of production as well as the type of oil that is available. This price determination by OPEC significantly influences the cost of gasoline worldwide, as does a collection of local economical factors. Economically speaking, increased demand brings about higher prices for consumer products, a trend that gasoline generally tends to follow. Generally, the demand for oil in the form of gasoline rises during the summer, when automobile and air travel increase. Correspondingly, the price for gasoline tends to be higher during the summer months than it is during the remainder of the year, with other factors being constant. While this is not always the case, the price of gasoline is affected by the magnitude of demand and thus follows a somewhat seasonal fluctuation.

Uncontrollable environmental factors can significantly impact the price of oil and thus the price consumers pay for gasoline. For instance, Hurricane Katrina forced offshore drilling platforms to evacuate laborers and cease operations in the Gulf of Mexico, prompting a record breaking spike in the price of gasoline. Short supply of any sought after commodity prompts higher prices, and America's far reaching reliance on energy produced from oil products perpetuates such price jumps.

You may have noticed while traveling that gasoline prices also fluctuate among different geographic areas. Much of this disparity can be attributed to differences in the rate that different states charge for taxes on gasoline. However, other factors such as the distance that products must be transported to reach the end user and the level of price competition also contributes to such geographical price fluctuations.

Gasoline price changes are the result of numerous factors, many of which are unpredictable, such as natural disasters, changing governmental policies and evolving international relations.