How World Events Can Affect Fuel Prices

Posted by Oilism.com on August 31st, 2010 at 10:39pm

How World Events Can Affect Fuel Prices

There are many factors that affect the price you pay at the pump when you fill up your vehicle with gasoline. The price of fuel may fluctuate even if the price of crude oil remains constant. However, when crude oil prices change, the cost of gas at the pump is always affected. Seasonality, competition between local retail stations, domestic problems like pipeline outages, and world events are all big influencers that determine how much you are expected to shell out at the pump.

The reason why world events play such a huge role in determining the price of fuel is the fact that crude oil prices are dependent upon global supply and demand, which can change on a dime. The most influential aspect of this is an organization known as OPEC, or the Organization of Petroleum Exporting Countries. In an effort to keep fuel prices fairly level, OPEC has set an upper limit on crude oil production since its organization in 1960. With 40 percent of the world’s crude oil production—and more than two out of three crude oil reserves—under the control of OPEC, this organization clearly has a huge say on the prices of fuel across the globe.

An early example of world events affecting the price of gasoline took place in 1973, when the Arab oil embargo occurred. Angered at the U.S.’s assistance to Israel in helping push back Egyptian and Syrian forces, OPEC imposed an embargo on the U.S. and raised oil prices to its Western European allies by 70 percent, setting off a severe recession and limiting the amount of gasoline Americans had access to.  Gasoline became very expensive and rare at a time when 85 percent of Americans drove to their place of employment.  More recent world events involve OPEC’s crude oil production cuts and mayhem in countries that the world relies on for oil production.

Some may wonder why the oil refineries in the United States cannot be counted on to produce enough fuel for the country, or least a great proportion of what is needed. Unfortunately, the current petroleum infrastructure within the United States in regards to refineries and pipelines is adding to the lower production of fuel within the country. As world events such as those described above occur, limiting supply, the demand for gasoline is hardly decreasing. In fact, it seems to be on a constant incline, exerting continued pressured on the price of fuel. It is a simple case of supply and demand: when demand is fixed or increasing, a decrease in supply causes prices to rise.

Under OPEC