Factors affecting price

There is news everywhere about soaring fuel prices and the impact on economy. Do you know what impacts fuel price?

Here in this article we explained the factors that affect fuel price and also given some tips to save gas.

Many people around the world believe that oil companies cause high fuel prices. The reality is that many factors impact the price. Three major factors are the price of crude oil, the decrease in the value of the U.S. dollar, and taxes.

You may know that the countries like U.S.A, Europe, China and India import crude oil, which is because these countries use more fuel than they produce.

The U.S.A imports more than 42 million gallons of gasoline and 10.5 million gallons of distillate every day. It must compete with countries around the world for the supply of oil and fuel. Demand for those products is strong, particularly in the U.S., Europe, China and India. Supply is tight and is aggravated by issues such as political unrest and weather. The smallest change in the supply and demand balance will affect the cost of crude oil and fuel.

The factors that are affecting price in the U.S. are explained in detail below

Factors affecting price Crude oil: The biggest factor affecting retail gasoline and diesel prices is the cost of crude oil. In 2007, crude oil made up 58% of the gasoline pump price and 56% of the diesel pump price. Today that has increased to 75% of the gasoline pump price and 64% of the diesel price. Taxes per gallon: Federal taxes are higher for diesel (24.4¢) than for gasoline (18.4¢). State and local taxes average approximately 29.2¢ for diesel and 28.6¢ for gasoline. Federal, state and local taxes together account for 10% of the cost of gasoline and diesel. Refining: Refining the crude oil into gasoline accounts for 10% of the retail price of gasoline and 21% of diesel price. Refining costs can be affected by several factors including costs to comply with various government fuel regulations. Distribution & Marketing: The remaining 5% of the price of gasoline and diesel is the cost of distribution and marketing. Transportation costs generally increase with increasing distance between the retail location and distribution terminals and refineries. Areas farthest from the Gulf Coast (the source of much of the gasoline and diesel fuel produced in the U.S.) tend to have higher prices.

Devaluation of the dollar: Dollar devaluation creates several problems for the world oil industry. The US dollar is the currency of choice in global crude oil trade while consumers use local currencies to buy petroleum products. Oil producing countries receive their oil revenues in US dollars but use other currencies to buy goods and services from different nations. The situation becomes more serious for OPEC as a cohesive group: its members have different trade partners, a situation that makes the impact of dollar devaluation differ from one country to another. International oil companies sell their crude in US dollars while they operate around the world using local currencies to pay for wages, benefits, taxes, and various costs. Consumers in countries with non-dollar appreciating currencies enjoy cheap oil, while people in dollar-pegged countries pay a higher price for the same barrel of oil. Therefore, dollar devaluation affects world oil supply and demand.



The crude oil connection

Gasoline and diesel prices closely track the cost of crude oil. In May 2005, crude oil cost about $45 per barrel. In July 2008, a barrel of crude oil reached approximately $148. That’s a 228% increase. During that same time, the average gasoline price increased from $2.21 per gallon to $4.11, an increase of 86% and diesel increased from $2.16 per gallon to $4.82, a 123% increase.



Driving Tips that Save Gas

Improving your car's mileage can be as simple as changing your driving habits.
Here are a few proven tips.

Aggressive Driving: Speeding, rapid acceleration and braking can reduce your miles per gallon by as much as 37%. Moderate driving increases your mileage and it’s also safer.

Observe the Speed Limit: Each vehicle reaches its optimal fuel economy at a different speed. However, gas mileage usually decreases rapidly at speeds above 60 mph. Generally, each 5 mph you drive over 60 mph decreases fuel economy by more than 7%.

Excess Weight: Avoid keeping unnecessary items in your vehicle, especially heavy ones in your trunk. An extra 100 pounds in your vehicle could reduce your mpg by up to 2%. Extra weight affects smaller vehicles more than larger ones.

Excessive Idling: Idling gets "zero" miles per gallon. Cars with larger engines typically waste more gas idling than cars with smaller engines. Potential savings can reach 19% improved mpg. If you are idling for more than a couple of minutes, consider shutting off the engine.

Cruise Control: Using cruise control on the highway helps you maintain a constant speed and can save gas – up to 14%.

Thanks,
Ravindra Reddy
Please send in your suggestions and comments to ursravindra@gmail.com

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Published On: August 03 2008
Published By: Ravindra Reddy Guyyala