A Basic Explanation of How Gas Prices Change

Few retail prices rise and fall as fast as gasoline’s. There are many reasons for the constant, quick changes and it takes an expert to accurately explain all of them in detail. That is why many speculators chart the oil and energy markets with the help of useful info found at investment websites. Articles on the sites are written by experts and delve into all of the factors currently affecting energy markets. However, a basic explanation that anyone can grasp is that prices at the pump are affected by crude oil prices, market trading and refinery operating costs.

Crude Oil Plays the Biggest Part in Gas Prices

The cost of crude oil has the biggest impact on final gas prices. Crude oil costs are mostly determined by supply and demand. Like any other commodity, the rarer it is, the more it costs. However, it is possible for gas prices to rise even though huge regions of the world to have oil surpluses. That may happen because OPEC (Organization of the Petroleum Exporting Countries) decides to set a production cap. They essentially lower the amount available, which can drive up prices. However, crude oil surpluses in the U.S. have often offset OPEC controls and kept gas affordable.

Daily Trading Can Drive Prices up or Down

Since gas is a commodity, futures traders can make money by speculating whether prices will go up or down and then bidding based on anticipated changes. Although trading prices generally reflect the market accurately, bidders can influence prices by creating bidding wars. Changes often fluctuate based primarily on emotions, especially if traders feel prices will skyrocket. They create short-term price increases that soon fall back to normal.

Gas Is Affected by Refinery Costs

The price of gas at the pump is also impacted by refinery expenses. Refineries factor in processing, added ingredients, distribution and transportation costs. Profits are also added in to refinery costs. The final price that consumers pay at the pump is also impacted by local market conditions, which is why several gas stations in one town may each charge different prices.

There are dozens of factors that can cause gasoline prices to rise and fall and it takes experienced professionals to understand all of them. However, the 3 things that have the most impact are crude oil prices, market trading and refinery expenses.