The price of petrol
Gasoline prices go up and down. Everyone knows that. But not everyone knows why these fluctuations happen. There are a lot of factors, from taxes to politics to the weather.
A question of supply and demand
Refineries buy crude oil at the best available price. This is largely set by supply and demand, or how much crude oil is available at the time and how many companies want to buy it.
Supply can be affected by geopolitics or weather events. In active hurricane seasons, for example, Gulf of Mexico oil production might be interrupted for long periods, reducing the flow of oil from those sources.
Demand can be affected by something as simple and predictable as a change of season (which is why gasoline tends to cost more in the summer, when more people drive long distances) or as complicated as people’s reactions to environmental challenges.
Refineries compete with each other to sell their products, including gasoline, at the best price they can get. Some types of gasoline require more processing than others, which means they are more expensive to make. This is why higher-octane gasoline costs more than regular. Biofuels and other specialty fuels also cost more for the same reason, although these prices may fall over time, as we find cheaper ways to produce the fuels and as demand for them rises. Most products are more economical to produce in larger quantities than in smaller ones.
Refineries compete with each other to sell their products, including gasoline, at the best price they can get. Some types of gasoline require more processing than others, which means they are more expensive to make. This is why higher-octane gasoline costs more than regular. Biofuels and other specialty fuels also cost more for the same reason, although these prices may fall over time, as we find cheaper ways to produce the fuels and as demand for them rises. Most products are more economical to produce in larger quantities than in smaller ones.
The government’s percentage
The final price displayed on the pumps usually includes taxes, which are set by the local or national government. In some countries taxes account for more than half the price. In the UK and much of Europe, for example, taxes make up about 70% of the total price charged at the pumps. By comparison, in the USA and Mexico this is closer to 20%.
Exchange rates can also affect the price. Crude oil and its products are traded in US dollars. So if the British pound or Australian dollar rises or falls against the US dollar on the world currency exchanges, motorists in the UK and Australia will pay a little less or more for their fuel as a result.
