There are several factors that cause the price of oil and fuel to rise and fall. The main determinants are global supply and demand, processing costs associated with refining, and speculation concerning possible disruptions in future oil and fuel production.
Global supply and demand
Supply and demand will fluctuate according to production and economic conditions. When top manufacturing countries are experiencing sustained growth, high demand is created. If global supply cannot match enhanced demand, prices will rise. Alternately, if a global recession occurs and demand for manufactured products recedes, fuel prices fall.
Technological advances in oil and fuel production will also affect global supply. As oil and fuel are produced with greater efficiency and untapped sources are made available, supply can far exceed demand. If these advances occur concurrently with a depressed world economy, prices for oil and fuel can drop significantly.
Major oil and fuel-producing countries can also use production cuts or boosts to control the economies of their enemies that are dependent on oil revenues, or lower the price of oil and fuel by overproducing in order to crush fledgling competitors.
Processing and manufacturing costs
The peak driving season in the United States brings a rise in the price of fuel. While this is partly because of increased demand, it is also associated with the costs of changing fuel blends.
Fuel vaporizes more easily in warmer temperatures, so the volatility of the fuel must be raised in the cold of winter and lowered for the heat of summer. Changing to a winter blend when demand is decreased doesn't have much impact. However, changing to a summer blend is a more expensive process, and coupled with increased demand, leads to rapidly increasing prices leading up to summer vacation time.
The effect of speculation on the price of oil stocks
Any hint of disruption in fuel production can cause the price of oil and fuel to spike. This is especially troubling because of political instability in major producers, particularly in the Middle East.
Concerns with domestic oil and fuel production in the United States may also present cause for concern. New advances in production techniques, particularly in the area of hydraulic fracturing, or "fracking", have contributed to a glut in global oil supply and lower fuel costs.
However, environmental impacts of these techniques are now being questioned. If these techniques are found to cause or contribute to pollution or seismic activity and are curtailed by legislation, oil and fuel production in the United States could fall dramatically, leading to price increases.
Fuel companies like Small & Sons Oil Dist Co are at the mercy of all of these factors and can only absorb a portion of the costs before passing them on to consumers.
