Gas prices are always a common subject for PumpTalk readers, so we decided to provide you with an update on pricing and what elements make up the price you see at the pump. The two largest factors that influence gas prices are crude oil costs and taxes. Following that is the cost of refining and marketing – which is all costs of operations – including the costs of refining and distribution, along with all marketing and operational expenses at the retail level.
Other elements to consider are local competition and commodity gasoline prices. We discussed this in more detail in a previous post on gas pricing.
Let’s focus on the largest piece of the puzzle – crude oil pricing.
- Weather – including severe storms like Hurricane Katrina which affected crude oil prices back in 2005
- Supply and demand – local and global (including the newly expanding demand of Asia)
- US Crude Oil inventories
- Cost of production and refinery infrastructure
- Global Crises
You can read more about factors affecting crude oil prices at the Natural Resources Canada Website.
Here are some key factors that are affecting the price of crude today:
Over the last year, the price of oil has certainly had a bumpy ride. Last year, the sharp rise was due to the conflict in Libya, while this year tensions with Iran continue to support the increase.
In an article in the Globe and Mail by David Berman, David explains how crude oil is rising:
“James Hamilton at Econbrowser rejects the notion that the Federal Reserve’s promise to maintain exceptionally low interest rates through 2014 is the biggest reason for the price gains. After all, you would think that low rates would affect all commodities – but crude oil seems to be in a world of its own.
Instead, he has an interesting chart showing the rise in the number of Google searches for “Iran war.” Curiously, they have spiked since October, coinciding almost perfectly with the rise in the price of oil. Meanwhile, he points to improving U.S. economic conditions, subsiding concerns about an oncoming European financial crisis and a rising outlook for Asian economic activity – all of which could be giving oil a lift.”
A good thing to remember is that crude oil prices are not always positively correlated, as we noted in a previous post: Gas Prices & Crude Oil: An Up & Down Relationship.
At this time of year, there is also a seasonality factor coming into play. The anticipated summer driving season is quickly approaching, which is when gasoline demand really starts to ramp up. To sum up, the largest affect on gas prices at the pump today are the cost of crude oil pricing and the anticipation of the increasing demand going into the summer driving season.
Have more questions? Let us know!
- Julie S.