Price of Fuel
Fuel has
already become a daily need for everyone especially for citizens of a well
developed country. We as the fuel consumer watch the price continue to fluctuate throughout the year. Here the
question rises, what cause the price of fuel to rise and fall ?
Cost of Crude Oil
One of the
major factor is the cost of crude oil in market. Crude oil is the primary
raw material used to produce fuel. Crude oil prices have risen
dramatically each year, which is caused by a strong global demand, a
limited spare oil production capacity, and a continuing political instability
in certain oil producing areas. According to Caltex, the price of crude
oil contributes almost half the price of a gallon of fuel. This means
that the price of fuel rises as the cost of crude oil rises. During 2008 to
2009, weak economic conditions around the world lead to a fall in demand, which
cause the prices to fall as well. As the economic recovers, demand
rises but unrest in the Mideast and North Africa faces the combination of
rising in demand and reduce in supply again push the price higher. (Caltex
Worldwide, Chevron Corporation, 2012)
Global
Demand
Global fuel consumption is expected to grow as the global economy
rebounds.The world’s demand for fuel increased rapidly for several years and
hit the peak at 86 million barrels per day in 2007. As the global economic
weaken in year 2008 and 2009, the consumption had reduced to 85 million
barrels per day at it's peak before the recovery in year 2010. The
EIA, Energy Information Administration predict the growth to accelerate in
the year 2012 hitting 88.8 million barrels per day and nearly 89.7 million
barrels per day in 2013 and continue to rise, the total world consumption
of marketed energy is expected to increase by 44% in the year 2030 than it was
in year 2006. —As the economic rebounds, income
level is higher, therefore even if the price of fuel is unchanged, the demand
for fuel will be higher. As the demand increase, supply is insufficient. In
this case, an increase in the Price occurs to eliminate the shortage by
affecting the quantity demanded and quantity supplied until the original
equilibrium is established. (American Petroleum Institute,
2012)
Global Supply-and-Demand
Problems
The increasing
of price for crude oil over the past few years is due to the continuous high
demand for fuel from strong economically growing countries in Asia like China,
India and other non-OECD countries. This is partly due to the fact
that it takes time to develop new pipelines.The
limitation of oil refineries resulted a reduction of spare oil production. This
cause a shortage of supply when there is an excess in demand of fuel. Unstable
political conditions of the Middle East which is the oil producing regions is
one main factor of global concern. (Demand
Media, Inc., 2012)
Natural Disasters
In any market
situation, supply and demand imbalances can affect prices in both the short and
long term.
The temporary shut
down of the of the oil refineries due to the Hurricane Katrina and Rita in 2005
cause a direct impact to the market situation as supply and demand were thrown
off imbalance. This occurs as the short term
demand for the oil refineries exceed the supply on hand and increase prices.
When the largest oil refineries in US were shut down due to the Hurricane, the
supply of gasoline and other refined oil products were reduced approximately
10% . To ease the demand, supplies were imported from other parts of the
country to the Gulf of Mexico region. Imported products are always more costly
compared to local production, and this is one of the factor that causes the
price to rise as well. As a result, supply was affected but demand still remain
the same level, this caused the price to rise sharply. (Chevron Corporation, 2011)
Works Cited
