Why do petrol prices rise and fall?"
The cost of petroleum (motor fuels) has continuously fluctuated throughout the year and consumers have observed it worldwide. This raises the question, "Why do petrol prices rise and fall?"
Why do Price rise?
The increasing price of petroleum is driven by strong global demand. The supply and demand for crude oil has majorly influenced the price of petrol. Of course other factors like exchange rates and the impose of taxation by local government are count as well. Fluctuation in the fuel price can be more understandable, if we observe at the supply and demand chain of petrol. According to the market equilibrium when the supply decreases the demand remains constant thus the price of petroleum increase. This result in shortage. This can be viewed on the recent increase in the price of petroleum that is due to the political conflict arise in the famously known oil producing nations of the Middle East. The recent countries like Bahrain and Libya who threatening the stability within the region and people are afraid that it will spread to neighborhood country like Saudi Arabia, the world largest oil producer. This can result in fuel price change; the oil production can be affected by instability and result in shutting down plants or hampering the transport of fuel. These eventually cause the supply of petroleum to decrease and resulting an increase in the price. More information on the conflict of Libya and Bahrain à http://www.bbc.co.uk/news/business-12619017.
Besides
that exchange rate is also become the factor why price of petrol
increases. This can be seen in UK,
According to BBC News ‘’The single most important factor
driving up prices is the weakening pound, according to Basil Shrourou from
fuelpriceonline.com. Sterling recently touched a two-and-a-half-year low
against the dollar. Crude oil and refined products are traded in dollars and
therefore become more expensive for British companies when the pound falls.’’ http://www.bbc.co.uk/news/business-21547684
As the supply of petroleum decreases, assuming demand remain constant, the curve will shift to left. Thus, causing an increase in price and a decrease in quantity.
Why do Price fall?
The fuel price fluctuation can also be observe at the eye of supply increase & demand decrease. Market equilibrium has state that; when the supply is constant while the demand decrease thus the price to fall; this result in surplus. In 2013, the increase supply of hybrid cars has cause the demand for petroleum to drop. The car manufacturers like Toyota, Honda and Mazda manufactured millions of Hybrid cars globally. Hybrid has prove its ability to maximize fuel efficiency, at a cost of $2.75 per gallon of gasoline, a hybrid that gets a combined 42 miles per gallon will result in an annual fuel cost of $982. A gasoline-only car that gets 25 mpg yields an average annual fuel cost of $1,650. This proves that a hybrid car use less petroleum compared to normal cars. Therefore, the demand decreases while the supply is constant. Thus, price for petroleum falls.
Other
factors that contribute to the price fall are the public transportation. The
high cost of vehicle operation from rising oil prices, the easy access and fast
public transport have become a big substitution to car, this can be seen in US
whereby people go to work or travel around the city by public transport, in
this way the demand and the price for petroleum will fall. For instance a recent
article in the United States, state that ‘the National Household Travel Survey
routinely monitors four modes of urban transport: private vehicles
(automobiles, SUVs or pickup trucks); public transport, such as buses, subways
and light rail; walking; and “other.” Notably, travel in private vehicles is
trending down; public transport is very much on the rise.’
As the demand for petroleum decreases, assuming supply remain constant, the curve shall shift to the left. Hence, lowering both the price and quantity.
For further information, please refer to the given link:
http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/cycling-and-car-shares-produce-small-but-significant-drop-in-oil-use/article4436285/
Written by
Muhammad Nazmi
0314788
You are talking about price fall and rise. I do think this is a great post.
ReplyDeleteHowever, what do you think about the stability of petroleum now? Do you think the price for petroleum will fall or rise again? Please relate this to current global issues.
Hello danny chow, regarding your question, the stability of petroleum is very likely to rise, the oil demand in 2013 is to rise as world economy recovers. The improving economic condition in china and the US is likely to result about 865,000 barrels of extra crude oil demand during 2013 to reach total consumption to 90.5 barrels a day, according to the IEA's latest oil.
ReplyDeleteThe expected increase in overall demand, plus that America is about to unleash a new round of quantitative to further boost the domestic economy, helped to raise to $109 a barrel. However (OPEC) has agreed to hold an output of 30m barrels a day. Due to the unease inside OPEC causes low demand growth and also the major increasing in American and iraqi oil production, that could lead to a price Fall next year . Neil Atkinson, director of energy research at Datamonitor, said: " There is rising oil from places like the United States, and Iraqi output is rising quite sharply. There's a risk that we see a sharp drop in price next year."
Written by,
Muhammad Nazmi
0314788