Long after super-storm Sandy's retreat, as we pick up the pieces and try to get back to normal life, we continue to gaze, with stunned disbelief at the long lines for gas. Cars are now so low on gas that we have to line up with gasoline cans. Gas rationing in NJ. I can read the unspoken, "Is this really happening?" on the faces of the weary folks in those serpentine lines. "Will the gas price now go up even further?"
And together with the looming presidential election, where both candidates have been using selective truths to debate their own cause, I thought this will be a great opportunity to discuss how the Price of Oil is determined.
In the larger scheme of things, like a lot of other commodities, gas prices are driven by Supply and Demand (When supply is less than demand, price is higher and vice-versa. Click on link for more details).
But there are a host of factors that are in play:
- Price of Crude Oil (Depends on global supply and demand, OPEC)
- Cost of transporting/refining crude oil to make into gasoline
- Federal Regulation (Permits/ EPA requirements inhibit or encourage setting up of more refineries)
- State regulation ( State taxes/fees - why gas price in NY/CA is higher than in TX/ AK)
- Technology ( Affects the efficiency and cost of refining - fracking?)
- Natural events/seasonal cycles
- Street competition
( See flowchart on page : The Price of Oil )
So increase in global consumption or production control by OPEC, will increase global demand and drive up price of crude oil and thereby impact the price of oil in the US. Increased regulation or poor technology that inhibits production within the US can impact price, having two gas stations on the same street can reduce gas prices or at least keep it steady and of course hurricanes, winter and other high consumption seasons can increase gas prices.
What about the rest of the world:
While we keep whining about gas prices in the US, we need to remember that US gas prices are still much lower than that of many other nations. But the US is more dependent on gas and US oil prices are also more volatile than many other nations as companies pass on to the consumer any spike or drop in global price. Some nations have an administered price system to cushion their economies from price fluctuations and periodically revise their gas prices upward, rarely ( if not never) downward.
Here is a chart on Global Gas consumption & Prices.
And what about NY/NJ in the aftermath of Sandy:
Oil price will go up or down in tandem with global prices and local supply and demand, but as long as NY/NJ continue their state of emergency, it is unlawful for retailers to increase gas price by more that 10%. It would amount to price gouging and will be a criminal act. You can ( and should) report it.
Wishing all NY/NJ readers a speedy recovery from Sandy!
