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Causes of Gasoline Price Fluctuations Analytical Essay


Introduction

Over the past decade, there have been continued fluctuations in oil and gasoline prices globally. These price fluctuations have been facilitated by the increase or decrease of crude oil prices in the international market.

The price fluctuations of oil and gasoline have had profound effects on many economies and businesses across the world. It has become difficult to forecast the prices of the two precious commodities with absolute certainty.

There have been times of great panic about the increase in price levels of oil and gasoline. Nevertheless, there has been some relief time when prices of the two products go down.

High fuel prices have always caught the attention of policy makers, politicians, and the general public at large (Krichene, &Fondsmonétaire international, 2006).

The usual response from the public has been an agitation aimed at the energy regulatory bodies to reduce prices of oil and gasoline.

Public, some politicians, and policy makers have been quick to blame regulatory bodies and oil dealers (importers) for conspiracy to manipulate oil and gasoline prices. With the increased awareness, the public has begun to learn the exact causes of fluctuation in fuel prices (Ginn, 2012).

Causes of price fluctuations of gasoline

There are different factors that cause gasoline prices to fluctuate. The price changes of gasoline have been caused by the rising demand for the commodity in the world today.

The fast growth witnessed in emerging market economies today has instigated the increase in demand for gasoline and other fuel products. The increased demand is not marched by the global supply of crude oil, which has been constrained.

This scenario has led to the gradual increase of gasoline prices in the world. Conversely, the recent deceleration in demand of the product has resulted into price reductions.

When the prices of crude oil decline at global stage, it leads to the decline in gasoline prices (United States, Federal Trade Commission, 2005).

Market factors are the major causes of changes in gasoline prices over the years. Most oil refineries import oil from oil producing nations. These refineries have to compete at the global stage for the purchase of crude oil.

When global crude oil prices increase, the refineries are compelled to buy the crude oil at high prices. The high cost of crude oil is then passed to consumers because the refineries have to recover high input costs.

This tends to push the prices of gasoline upwards (United States, Federal Trade Commission, 2005).

Furthermore, regulatory factors also play a key role in determining the prices of fuel in the world today. The Organization of Petroleum Exporting Countries (OPEC) is a body that coordinates the pricing of crude oil.

OPEC is a cartel arrangement that produces the largest quantity of crude oil in the world and has a strong influence on the prices of crude oil. OPEC has the influence on the supply of crude oil.

In this case, when the OPEC increases supply of crude oil in the world, it leads to the decline of gasoline price. On the other hand, when it limits the supply of crude oil, prices of gasoline tend to increase (United States, Federal Trade Commission, 2005).

Furthermore, swings in consumer energy prices have been a major cause of crude oil price fluctuations. Consumer price inflations have played a significant role in the recent price fluctuations.

The increased demand for gasoline pushes the prices of the products from time to time. As the demand continues to rise, the rate of gasoline price also increases simultaneously. In addition, instability in major currencies can be blamed for the fluctuations in the gasoline price.

Changes in foreign exchange values have an important impact on the fluctuation of gasoline prices (Gallup & Newport, 2009).

The recent concerns about environmental pollution can also be taken as the cause of price increase of gasoline. For instance, in the United States, state and federal regulations require blend of gasoline to reduce air pollution.

This increases the cost of production, which leads to an increase in the cost of gasoline. Moreover, state and federal changes in taxes levied on gasoline may also affect the fluctuations in gasoline prices (United States Government Accountability Office, 2005).

In Georgia, there have been minimal variations in gasoline prices over the last five years. Prices have been the subject to changes owing to different factors prevalent in the country. The pricing of gasoline in the country is largely influenced by the forces of demand and supply.

In the year 2010, gasoline supplies were hampered by the repairing of Enbridge pipeline. This caused low supply of gasoline in Georgia, which pushed gasoline prices upwards (Ginn, 2012).

For instance, the price of gasoline per gallon in Peach State was pushed to $2.61 from $2.56 within a month and from $2.34 almost one year ago. Furthermore, fluctuations in crude oil prices have impacted on gasoline prices in Georgia.

High crude oil prices in 2010 greatly impacted on the prices of gasoline which differed from one retail station to constrained supplies. This resulted into increased gasoline prices, hence affecting demand at the same time (Ginn, 2012).

Conclusion

There are many causes of changes in gasoline prices. The factors that cause these changes include market forces of demand and supply to the environment as well as regulatory factors.

All stakeholders including refineries, retailers, consumers, and policy makers should understand these factors for proper measures to be taken to stabilize the prices.

References

Gallup, A., & Newport, F. (2009). The Gallup poll: Public opinion 2008. Lanham, Md: Rowman& Littlefield Publishers.

Ginn, V. (2012). The Underlying Causes of Oil Price Fluctuations. Retrieved from

Krichene, N., &Fondsmonétaire international.(2006). Recent dynamics of crude oil prices. Washington, D.C.: International Monetary Fund, African Dept.

United States Federal Trade Commission. (2005).Gasoline price changes the dynamic of supply, demand, and competition. Philadelphia: DIANE Publishing.

United States Government Accountability Office. (2005).Motor fuels understanding the factors that influence the retail price of gasoline. Philadelphia: DIANE Publishing.

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IvyPanda. (2019, December 29). Causes of Gasoline Price Fluctuations. Retrieved from https://ivypanda.com/essays/causes-of-gasoline-price-fluctuations/

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1. IvyPanda. "Causes of Gasoline Price Fluctuations." December 29, 2019. https://ivypanda.com/essays/causes-of-gasoline-price-fluctuations/.


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IvyPanda. "Causes of Gasoline Price Fluctuations." December 29, 2019. https://ivypanda.com/essays/causes-of-gasoline-price-fluctuations/.

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IvyPanda. 2019. "Causes of Gasoline Price Fluctuations." December 29, 2019. https://ivypanda.com/essays/causes-of-gasoline-price-fluctuations/.

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IvyPanda. (2019) 'Causes of Gasoline Price Fluctuations'. 29 December.

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