How the Gasoline Price You Pay Is Set By Supply and Demand

fuel prices can affect our overall budget

High fuel costs are caused primarily by high crude oil costs. Oil prices account for about 43% of the cost of regular gas. The rest comes from marketing and distribution, refining, and royalties. These other contributions do not vary as much as crude oil prices do very often. That said, they are important to keep track of, since fuel prices can affect our overall budget and lifestyle very significantly.

A good way to keep track of how much your car is costing you each month is to check fuel-related taxes and other taxes (such as property-based taxes and vehicle registration fees). If you take an average of all of these taxes over time, you will get a fairly accurate picture of how much gasoline your family is paying in gasoline taxes. Some families, for example, may be able to save a substantial amount of money through proper fuel management. But, even if you’re not able to take advantage of fuel-saving strategies, keeping track of your taxes will give you a sense of where changes in the price of gasoline may be headed.

Other factors affect oil’s cost

One of the things that affect how much your family is paying in gasoline prices is the amount of miles driven. A higher mileage means a greater consumption of fuel, since it takes more fuel to go a longer distance. Therefore, if you want to save money on gas prices, you should drive fewer miles each year.

For example, the development of new technologies that can further refine petroleum products can affect the cost of fuel. These innovations can reduce demand for petroleum products, leading to lower demand for oil itself. As a result, demand for oil will generally respond to higher supply. Changes in global supply and demand are anticipated to continue over the coming years, giving drivers a number of opportunities to save money on gas prices.

the cost of gasoline is not set by supply

As mentioned above, the price per barrel of oil that refineries sell has a lot to do with the overall price of gas. However, when you examine the supply chain from start to finish, it’s easy to see why the cost of gasoline is not set by supply. In addition to the aforementioned factors that control the cost per barrel, demand, technological advances and taxes all play roles in determining how much gasoline an average American consumes each day.

If demand for gasoline rises above supply, prices will naturally increase. As supply meets demand, prices will naturally fall. However, if demand exceeds supply, it’s a sign that the US government may be failing to properly regulate the market, and the supply-demand imbalance will continue to affect gasoline prices for years to come.

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