Wednesday, August 13, 2008

Top 10 Factors that Influence Fuel Prices

It does not take an expert to notice that gas prices have risen sharply over the past year. Although the average person probably understands that demand influences gasoline prices, you might be surprised to learn that there are actually dozens of different factors that can increase or decrease the price you pay at the pump. To help the readers of my blog understand how complex the prices of petroleum really are, I have gathered the following list of the top 10 factors that influence fuel prices.

1. High Demand

Demand is high for gasoline in not only the United States, but around the whole world. With more and more cars on the road every year, and a second baby boomer generation, the demand for gasoline is higher in this country than ever. Although increased gas prices have cause the average American to drive less in general, the population and number new drivers continues to increase.

2. Limited Resources

Pricing of petroleum is controlled by the OPEC countries, which own about 2/3 of the worlds oil reserves. Some feel OPEC countries control and change the price of oil at their will, but it is becoming obvious that the reserves themselves are beginning to run low. The supply of crude oil as a whole is dwindling. “Our demand has skyrocketed, but our ability to supply that demand has stagnated,” notes Stephen Schork of the industry newsletter, the Schork Report.

3. Weather

Disasters like hurricane Katrina and now the Iowa floods are contributing to the gas spike too. The flood contributed to the loss of over a billion bushels of corn, which causes significant harm to the ethanol industry.

4. Summertime Travel

In the summer, there are more RVs on the road, more vacations, and more overall gas usage. Due to the increase, gas prices go up every summer to deal with the higher demand. However, prices fluctuate frequently during summer months due to this occurrence.

5. Future Planning

Recent studies and investigations have found that gas prices are being raised not necessarily by immediate need, but by predictions of future consumption. Many consumers who find this fact are upset by the fact that they are being overcharged for future reserves.

6. Corn Crop Loss

Due to afore mentioned weather problems, ethanol made from corn crops is in short supply. With the shortage in ethanol, ethanol prices have shot up and fewer people are using it to power their vehicles. Therefore there is even more demand for fossil duels which causes prices increases.

7. Tax Rates

In addition to already high fuel costs, both the federal government and most states levy some sort of excise tax on consumers who purchase gasoline. The federal fuel tax hovers a little under 20 cents a gallon, while most state taxes are slightly about 20 cents.

8. Geographic Location

Where your buying gas makes a huge difference. Getting gasoline a few miles outside of a major city like San Francisco or Seattle can drastically reduce the price you pay per gallon. Additionally, some smaller cities across the country have higher gas prices to meet with their local economy and gasoline demand.

9. Competition

It is hard not to notice the competition when you see a gas station on each corner of almost every major intersection. When a larger city with more drivers calls for more gas stations, competition can raise and lower your local prices on a daily basis. With the allover raise in fuel prices, many consumers try to choose the station with the lowest price, forcing close competitors to watch and mimic each other constantly.

10. Other Petroleum Products

Although the demand for crayons cannot to be compared to the demand for gasoline, there are examples of another petroleum product that can take up resources as well. Bubble gum, record, tires, asphalt, propane, ammonia, and deodorant are all common products that require petroleum for production.

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