A Basic Understanding of Factors That Change Gas Prices

The world economy is so interconnected that a change in one area can affect the price of commodities thousands of miles away. That is especially true of the oil and gas industries. There are many factors that impact pricing and it takes skilled professionals to understand them in detail. That is why professionals write articles like the one found at https://oilandenergyinvestor.com/2011/04/why-gas-prices-are-outrunning-oil-prices/. Anyone interested can investigate here and get detailed information. However, a very simple explanation would be that prices are heavily influenced by supply and demand, crude oil costs, refinery profits, and the market.

Crude Oil Has a Major Effect on Gas Prices

The cost of gas is heavily impacted by crude oil prices. In fact, crude oil costs account for about 71% of what consumers pay. Since the cost of crude oil can change, it is considered volatile, or relatively unstable. Costs are sometimes affected by world events, such as wars, oil spills and even disastrous hurricanes like Katrina. When major changes happen for any reason, it generally takes about 6 weeks for gas prices to reflect them.

Trading Has Some Effect on Prices

The price of both crude oil and gas are partially controlled by supply and demand. Generally surpluses mean lower prices and scarcity increases them. However, market trading can also cause fluctuations. Traders buying and selling oil futures decide whether they think prices will go up or down and bid based on their predictions. Their transactions can drive oil prices up or down, regardless of supplies.

Refinery Margins Can Change Prices

Gas costs are also impacted by refineries. The process used by refineries to determine pricing is too complex to sum up quickly, but it is safe to say that results are heavily affected by refining margins. Basically refining margins are the difference between refineries’ crude oil and end product costs. Understanding the spread between raw materials and wholesale petroleum products lets refineries estimate profits. They also factor in costs like distribution, operating costs and even expenses caused by issues such as government regulations.

There are many changing factors that influence the price of gas, so calculating prices accurately is complex. However, some of the most important influences include supply and demand, crude oil prices, refinery profits and market trading.