Why Do Gas Prices Fluctuate? Essay

In the United States, most drivers are well aware of the persistent erratic gas price changes over the past few years. One day the prices might be at a lowered price, and the next day the prices could possibly be raised to an even higher price than It was before. This might lead to Individuals being confused as to why these sudden price changes are occurring. Some people who may not understand what is going on might feel as if they are being cheated or ripped off. It even makes it difficult for one to budget their gas expenses.

There are a few different factors that have contributed to he rising and falling of the gas prices. The perpetual fluctuation of gas prices has a lot to do with the oil supply and demand, the costs of the refined crude oil which is used to make gasoline, distribution network disruptions, the value of the U. S. dollar, and the oil trading market. Supply & Demand: Crude Oil and Gasoline According to David Ramberg and John Parsons (2012b “Several recent studies establish that crude oll and natural gas prices are colntegrated [sic]” (Para. ). Because the price of crude oil tends to change quite often, It causes the cost of asoline to vary as well. Supply and demand Is one of the maln reasons why gas prices are driven up and down. More than Ilkely, the price of crude oil will decline when the level of supply is at a high. On the other hand, when the supply is limited, the price of the oil will rise once again. While the supply of crude oil has been somewhat steady over the years, economies are steadily growing. As a result, the demand for crude oil is on the rise.

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As explained by Jad Mouawad and Julie Werdigier (2007): Bolstered by speedy economic development and industrialization, energy emand from Asia has been one of the main contributors to higher oil prices. Over the last two years, China and India accounted for about 70 percent of the increase In energy demand and the world’s energy needs would Increase 55 percent by 2030. (Para. 3) Due to the persistently Increasing economic development and population growth In the United States, as well as all across the world, the demand for crude oil will continue to Increase.

Without a doubt, supply and demand is the most substantial cause of the ever-changing gas prices. Distribution Network By the crude oil supply being a vital determining factor of the gasoline prices, political conflicts has definitely had an effect on the prices of gasoline these days. In a news article, President Obama stated “The key thing that Is driving higher gas prices is actually the world’s oil markets and uncertainty about what’s going on in Iran and the Middle East, and that’s adding a $20 or $30 premium to oil prices” (as cited in Obama, 2012, Para. ). In addition to the political Issues that involve oil, there is the possibility of disruptions in oil flow. Disruptions In the flow of crude oil supply can also cause the prices of gasoline to soar. These disruptions can arise from natural disasters Ilke earthquakes, tornadoes, and hurricanes such as the Infamous Hurricane Katrina and Hurricane Sandy. The Value of the U. S. Dollar According to Lauren Crenshaw, Balasundram Maniam, and Geetha Subramaniam of oil in the US.

Recently, interest rates have been low and the value of the dollar has declined” (Para. 9). The Oil Trading Market rhe next thing that has a major impact on gas prices is market speculation. The oil rading market consists of three markets: The Contract Market, Spot Market, and Futures Market. Within the Contract Market, there are contracts between oil companies, dealers, factories, as well as independent dealers which pretty much predetermines the outcome of the oil and gas.

Then there is the Spot Market, which is the only one of the three markets to deal with the trading of the oil barrels. Lastly, there is the Futures Market. According to Earl Ofari Hutchinson (201 1): Speculators buy and sell oil future contracts, better known as derivatives. The value of the oil utures derivative is based on nothing more than the value of the barrel of oil bought. The buyer essentially bets that the oil will hit the purchase price at a future point in time. (Para. ) Competitive Pricing & Location Nowadays, people might notice that gas prices at the pumps might differ from one gas station to another. Competition among different gas stations is another reason Nhy there is a variance in gasoline prices. Some people are willing to travel a little further to certain gas stations simply because they have lower prices. Not only does ompetitive pricing have to do with the differences in gas station prices, the location of the gas station is also a major factor.

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