The ebb and flow of gas prices are dependent on specific market forces. The rise and fall of these prices then either result in consumer frustration or happiness. The recent decline in gasoline prices spread joy among consumers across the United States; it significantly contributed to their discretionary income which increases their spending power.
Let’s take a closer look at the components that determine the price consumers pay at the gas pump:
The basic rule of supply and demand has the most impact on gas price fluctuation. It is important to understand that extracted oil is graded by its viscosity (light and heavy). Light, also known as sweet crude, contains fewer impurities. It takes comparatively less time to process it into gasoline, which is precisely why it is greater in demand.
The recent decline in gas prices has put an additional $50 billion in personal disposable income in the pockets of vehicle owners.
Sweet crude was once widely available, but now is scarce. Refineries require huge capital investment to process heavy crude that contains more impurities and process it into light crude.
The high demand, scarce light crude resources and high cost of fracking (processing heavy crude) are factors that impact prices. The expense incurred in order to process and supply gasoline is passed down in the form of inflated gas prices to consumers.
However, the fall in gasoline prices are influenced by factors like greater investing in more fuel-efficient cars and hybrids, thereby lowering fuel consumption, and impacting demand.
Other factors that affect gas prices are inflation and taxes. Inflation is the rate at which prices of goods and services rise. The level of inflation directly affects fuel. Similarly, tax on a gallon of gas also influences the fuel prices, and that tax varies by state and municipality.