If you use petroleum products like gasoline and diesel fuel regularly, you know how often and fast their prices change in the market. Price fluctuations are volatile, with sudden drops and spikes having significant effects on a global scale. To better understand their movement, here are a few factors that drive it.
What Impacts Oil Prices?
With oil prices, the basic law of supply and demand rings true—any movement in the supply levels inversely affects the price. The majority of the world’s oil production comes from the Organization of Petroleum Exporting Countries, or OPEC, accounting for 79.4 percent of reserves in 2018. Whenever there are policies, political disruptions, and weather disturbances that impact these oil-producing nations, the supply of petroleum products is often the first to take a hit, typically resulting in dramatic price shifts.
Demand dictates the prices of petroleum products as well. When there’s a growing need for oil because of increased consumption and robust economic growth, the price will likely rise. For instance, oil use jumps during the hurricane and winter season for heating, translating to higher market rates.
3. Geopolitical Events
Many of the oil-producing countries are at odds with other nations, and any brewing tension or threat will impact oil prices. Geopolitical events like war or ongoing conflict endanger oil supply and production, which translates to an uptick in prices. History has repeatedly shown that politics involving oil-rich countries or those in the Middle East is a significant determinant of price movement.
4. Industry Changes
Oil remains a precious commodity. However, its position as a significant energy source is on shaky grounds, as more people turn to sustainable alternatives. Renewable energy such as solar, geothermal, and wind have made consumers more aware of the environmental impact of oil. A decline in demand often pushes oil pricing down, something that OPEC monitors and controls.
Crude oil trades in the commodities market, where participants lock in prices in the form of contracts called futures. Traders look at factors that estimate industry outlook and predict oil pricing, such as future and current supply levels and projected consumption. By setting the future price, they reduce the risk of price fluctuations during events.
Now that you understand what factors drive gasoline and diesel fuel prices, you can better time your bulk purchases. For on-time fuel delivery, you can depend on Bradigan’s Incorporated in Kittanning, PA. Since 1952, they’ve supplied a variety of quality petroleum products to homes and businesses throughout Armstrong and the surrounding counties. Call (724) 548-7654 or visit their website to learn more.