One month the fuel prices go up and the next month it goes down, the question is why? Gas prices skyrocketed during 2022, will they ever go down again? What influence the month-to-month fuel prices?
Crude oil
Petrol and diesel are derived from crude oil. The top 5 producers of crude oil supply for the global market are located in the United States, Saudi Arabia, Russia, Canada, and China. Oil is traded globally and can easily move from one market to another via ships or pipelines. The global market set the price of crude oil and is determined by the supply and demand balance of crude oil around the world
OPEC countries
Organization of Petroleum Exporting Countries or short OPEC are 13 oil-producing countries that control oil supply and can potentially manipulate oil prices. Countries that depend on oil produced by OPEC countries might pay more for crude oil than they should. OPEC has less of a foothold in the market than in earlier years because of big non-OPEC countries producing more oil like the United States, Russia, Canada, and China.
Currency exchange rate to US dollar
The currency of crude oil is in US dollars because it is the world’s reserve currency and is widely available across the globe. The US dollar is the standard currency of international trade. The price of crude oil in your country gets influenced by how strong your local currency is to the US dollar at the time of purchase.
Oil Refineries a bottleneck
During the Covid pandemic, many oil refineries shut down, and starting the refinery up again is a complicated matter. It will take a long time for crude oil production to meet the ever-growing demand for crude oil products.
Acquiring and Refining
Crude oil prices also need to cover the cost of extracting the oil and transporting it to refineries where different parts of the crude oil are extracted like petrol, jet fuel, and diesel. These refineries also have a running cost for producing these products and significantly add to the price tag of gasoline.
Supply and Demand
Not all crude oil has the same quality and density. Density affects the amount you will get per barrel of a certain product. For example light, less dense crude oil will produce more gasoline than heavy crude oil. If you have too much heavy crude oil you might not meet the demand for gasoline and prices may go up.
Distribution and marketing
When the crude oil is separated into its different products it must be stored and transported to the areas where the demand is. The further the fuel gets transported, the higher the price tag will be at the petrol station. Those petrol stations also need to be maintained and require staff to function and it all adds to the cost of the fuel going into your tank.
Taxes
Depending on the country you live in, state taxes on fuel are always a significant portion of the retail price of fuel. In the UK you pay fuel duty tax which is 5 pence per liter and VAT of 20% during 2022 and 2023.
Conclusion
There are many moving parts in determining the retail price of fuel and there is not always an easy answer. So many things can affect fuel prices from bad-quality crude oil to a pandemic or even countries invading each other. Russia’s invasion of Ukraine also caused fuel prices to soar in 2022 – 2023.
There are many crude oil producers around the globe and depending on where you live and where your country gets its oil from, things like transport/distribution can heavily affect fuel retail prices.
Hopefully, the market will start to settle down and the supply and demand balance will start to favor a reduced fuel price tag.
