Earnings

Determining Fuel Prices

Consumers worldwide have watched the cost of petroleum (motor fuels) continue to fluctuate throughout the year. This raises the question, "Why do petrol prices rise and fall?"

In the long term, the greatest single factor influencing petroleum prices is the cost of crude oil. However, marketplace forces of supply, demand and competition can have a significant effect on the price of petroleum in the short term.

The Cost of Crude Oil

Crude oil prices have risen dramatically over the last few years, driven by strong global demand, limited spare oil production capacity, and continuing political instability in certain oil producing regions.

Since the price of crude oil has the most significant long-term impact on the average price of petroleum, contributing to almost 50 percent of the retail price, it is not surprising to see average petroleum prices significantly higher as well.

Increase in International Energy Demand

Surging crude oil demand is being fueled by strong economic growth, particularly in non-OECD nations. The U.S. Energy Information Administration projects that total world consumption of marketed energy is expected to increase by 44 percent from 2006 to 2030. Reduced spare oil production capacity leaves very little room to compensate for unanticipated supply disruptions or spikes in demand. The tenuous balance between supply and demand is even more of a concern when you consider that most of the world's oil is located in some of the more politically unstable parts of the world. As such, supply disruptions, whether real or perceived, can have dramatic effects on the price of crude oil.

Global economic expansion is driving what the U.S. International Energy Agency (IEA) says is the biggest increase in oil demand in 24 years. In particular, energy consumption in the emerging economies of non-OECD countries is expected to increase by 73 percent between 2006 and 2030. The driver behind the fast-paced growth in energy demand...