Why Do Fuel Prices Fluctuate? A Beginners Guide To Fuel Economics

The price of fuel is one of the most discussed topics in Britain, almost bringing competition to the wee weather chat.

Not everyone knows why fuel prices go up and down, so we’ve written a little beginners guide to fuel economics.

Next time someone says ‘Gosh, why are the fuel prices going up again?’, don’t just say ‘Duh, don’t I know it?’ tell them the true story of why fuel prices fluctuate.

Crude oil supply and demand

Petrol is made from refined crude oil. The price of crude oil mainly depends on global supply and demand. If there is plenty of oil (if quantity of oil supply is high), then the prices are low. If there isn’t (if quantity of oil supply is low), then the prices go up.

Let’s think of it like Pokemon cards for now, if you’ve got a mint condition Charizard card, the quantity of supply is low (it’s a rare card) – therefore the price of your Charizard mint condition card is sky high.

If you’ve got a Voltorb (a very basic Pokemon card), the quantity of supply is high (lots of people have this card), and you’ll not be able to exchange your card for very much!

The oil industry is a bit of a beast to keep track off. Sometimes things go tremendously well, other times countries are forced into recessions.

Long term/ future supply plays an important role in the price of crude oil likewise, if there are limited resources available the price goes up. The price of oil will adjust in accordance with the day were we’re going to be out of oil. The more scarce a resource is, the more expensive it tends to be.

Fuel Tax

The fuel tax in the UK is one of the highest in the world, and is put towards maintenance of roads and traffic networks.

The government also uses the fuel tax as a way of discouraging people from using their cars too much, to help protect and preserve the environment.

Overall, fuel tax is spent in the best interest of the general public. But as with politics, we all have different versions of what’s in our personal best interest.

Political Unrest

Political unrest has a big impact on the the price of petrol. Some of the countries that produce most oil, are also countries that have suffered/ are suffering severely from political turmoil, civil wars, dictatorships, wars, and economic unrest.

If a country is suffering from civil unrest and corruption, oil productions can be forced to stop as foreign workers have to flee the country, or the production can be put on hold because it’s unsafe. When one nation stops producing oil, the others nations will either have to produce more – or the supply will go down and prices up.

Retailer

A small portion of the fuel price goes to the retailer. This goes to maintaining stations and having oil delivered. Because of the extremely competitive nature, petrol stations make surprisingly little profit from selling fuel.

Conclusion

Hopefully this has given you a bit of intel to what lies behind the digital fuel displays at your local petrol station. There’s an awful lot of factors that go into determining the price of oil; some factors are very far from our little Western bubble, some are very close.