Why Fuel Prices Fluctuate

Supply and demand affect fuel prices.

Fuel prices fluctuate for a variety of reasons. Unlike other commodities, basic energy such as gasoline, natural gas or heating oil, are generally more shifting in their costs as production and distribution is controlled by fewer suppliers.

Crude Oil Costs

Crude oil costs are subject to fluctuations brought on by worldwide supply and demand. An organization founded in 1960, the Organization of Petroleum Exporting Countries (OPEC), attempts to keep the prices for crude oil at a set level.

Seasonality

Fuel prices fluctuate seasonally due to supply and demand. Typically, the cost for fuel during the summer months is around 5 percent higher than the seasons when travel is down. This is because there are more people on the road and demand is high. This happens even when crude oil costs are stable.

World Events

The costs of fuel are determined by world events, such as the Arab oil embargo of 1973 or the Persian Gulf War in 1990. Domestic refinery or pipeline problems can also cause cost fluctuations.

References

• U.S. Energy Information Administration: A Primer on Gasoline Prices