FAQs About Oil Price

Why does the price of gasoline continue to rise?

Gasoline prices are determined by a set of unique conditions within different localities and vary widely around the world. In many countries, the largest single element is not the cost of crude oil, but rather government taxes. In some European countries, taxes can represent as much as 75% of the price the customer pays at the pump.
Nevertheless, the cost of crude is significant and, in countries where gasoline taxes are lower, it is the major factor in the cost of gasoline. Crude oil is trading well above $100 per barrel on the open market, and is being driven by the world’s growing demand for energy.
Finally, the price of gasoline also needs to include refining, distribution and operating costs. So the margin left for oil companies is usually a small percentage of the pump price – much lower than most customers realize. Worldwide demand for crude oil and refined products has increased rapidly in recent years, led by the explosive growth of the economies in China, India and other Pacific Rim nations, and the supply of crude has been hard put to keep pace with that demand. Some people suggest that crude prices also are being elevated by geopolitical tensions and, possibly, by financial speculators. To whatever extent these factors exist, they are beyond our control. We must deal with the market as it is, and in this regard, supply and demand prevail.

Don’t the major oil companies control the crude market?

There are more than 3,500 oil companies in the world. Take Shell for example. The company produces only 3% of the world’s crude, and they refine more crude oil than they produce; which then requires them to purchase oil on the spot market to meet refining and retail demands. As a result, even a company as big as Shell is subject to market fluctuations in price and supply; more so are other oil companies. Crude prices in each country are set by supply and demand, and are influenced by such factors as OPEC supply restrictions, weather, stock levels and the sentiment of financial markets.

Oil companies continue to report record earnings. Aren’t they just profiteering from high crude oil and gasoline prices?

The energy industry is one of the world’s largest and most complex industries. Profits are large because the business is large, with very large investments. Strong earnings among all the major oil companies enable reinvestment in both the upstream and downstream parts of their businesses. The industry is spending at record levels to increase supply to meet the growing global demand for energy.

Why can’t oil companies use their upstream profits to subsidise pump prices?

Producing crude oil involves long-term and high-risk projects requiring billions of dollars in investment over 20 to 30 years. Higher profits in some periods help safeguard investments when oil prices (and profits) are lower at other times.

So what can drivers do to save money on gasoline?

The way you drive and the way you maintain your vehicle can help reduce your fuel consumption and save you money. Here are some tips:

1. Drive smoothly, avoiding heavy acceleration or braking.
2. Manual cars -- change up to a higher gear as early as possible as you accelerate.
3. Automatic cars -- shift up gears more quickly if you ease back on the accelerator once the car gathers momentum.
4. Keep your engine well tuned, check your oil and fix any problems immediately.
5. Make sure your tires are at the correct pressure and not under- or over-inflated.
6. Keep your trunk/boot or back seat clear of unnecessary items that add weight.
7. If you are not using your roof rack or roof box, take it off.
8. Keep your windows closed, especially if you are driving at higher speeds.
9. Always use the recommended grade of oil in your engine.
10. Use cruise control on major roads and in free-flowing traffic.
11. Turn off your engine in heavy traffic to avoid excessive idling.

Hopefully these Q&As have provided you with some insights on the reasons for high oil price....at least some of the reasons, if not all.