(Economics major) The factors that influences our current gasoline Essay

(Economics major) The factors that influences our current gasoline price. ( crude oil, tax, etc..) - Essay Example To further explain, the following component and circumstance are explained on how they affect the price of petrol. Factors That Influences our Current Gasoline Price 1. Crude Oil Of all the factors that influenced the cost of gasoline, the cost of crude oil is the single most significant factor that influences our current gasoline price. It accounts up to 55 % of the total gasoline price. The cost of crude changes over time and varies among different regions of the country and the world. Crude oil cost, just like any commodity in the market is also determined by the law of supply and demand. As the law states, when supply cannot keep up with the demand, the price will naturally go up. This is also the case of crude oil where demand is perpetual while supply can be precarious due to a lot of factors. The price of gasoline is influenced by both the demand and the supply side. On the demand side, it is us consumers who determines it according to our consumption of energy and also genera lly the world’s economic growth or downturn. This happens when there is an economic growth where demand for energy increases and that means that the requirement for fuel will also naturally increases and that will translate for higher prices in crude. ... OPEC exerts a significant influence on the price of crude because its member countries constitute 43 % of the world’s crude supply in 2010. That is more than half of the world’s requirement for crude coming from a single entity or organization that it can literally dictate the price of crude my contracting production or by overproduction. When the nations that comprise OPEC choose to raise the price of crude oil, all it has to do is to reduce production and that will immediately in the price of crude. Because when there is scarcity of supply or a fear of future oil shortage, price of crude will inevitably go up. Classic example of this would be the incident in April 2001 when OPEC reduced its oil output by one million barrels per day which jacked up the prices of gasoline in the following month. The Role of OPEC While it is OPEC that accounts 43 % of the world’s supply of crude that it can dictate the amount of crude by merely contracting its supply, it cannot ho wever do so in a whim. It has to maintain a certain price to subsidize its future exploratory cost for oil and also to shield itself from the depreciation of the dollar of which oil contracts are denominated. OPEC doesn't want oil prices too high, or alternative fuel sources start to look good. OPEC has said its target price for oil is between $70-$80 a barrel. (See  High Oil Prices Caused by Wall Street, Not OPEC)(Article updated April 15, 2011) 2. Refining Cost Crude is the raw material of gasoline. But before crude can be made into gasoline that can be sold in gasoline stations, it has to be processed and refined first. The characteristic or type of gasoline that is made available is highly dependent on how it will be processed at the refinery where it is being produced. This