Crude Oil Prices: Facts Behind Rates and their Effects on Prices at the Pump

With all the price swings at the gas pump, anybody who drives can't help but notice the constantly swinging prices. Underlying the gas prices, of course, is the price of crude oil-which is also fluctuating on a regular basis.

The oil market is like any other market, in that it functions according to normal economic rules. When supply gets low, (or oil gets hard/expensive to produce), prices go up. When supply is high, prices go down.

With this said, there are a number of factors that do influence price. Wars, would-be wars, public opinion, changes in the price of oil substitutes, changes in vehicle prices, natural disaster, and technology changes are just a few of the factors that can influence crude oil prices. Events such as the war in Iraq disrupt the production of oil, and therefore the supply becomes limited, and the price goes up as well.

The oil producing countries, let by the OPEC cartel, have a significant amount of control of the price of crude oil. OPEC has the greatest influence because they can set production quotas and essentially rig the price of most of the oil supply. When they band together, they can drive up prices. The American public and government has also had something to do with keeping demand-and prices-for crude oil high. If we had been diligent about developing sources of alternative fuel, there might be a lot less demand for crude oil today than there is. Some examples of technologies that could have been much more developed, and much more fully implemented, would include the hydrogen fuel cell, solar energy, and hybrid electric cars. Although hybrids are beginning to make significant inroads in the vehicle markets, there is still a long way to go.

The government also influences the price of crude oil, and ultimately, the price at the pump, by raising and lowering taxes. An amazing percentage of every dollar you spend on gas goes not to the gas station owner, or even the oil companies. It goes to the government.

Oil prices are also related to speculative value. People predict if the value will go up or down and that's how prices fluctuate.

In the end, the "little guy" running the service station has no control over the price of gas at the pump. If the local gas station raises prices too high, nearby gas stations are quick to take advantage and drive prices back down.