Skip to main content
Crude OilFuelFuel PricesGasGas PricesGasolineGasoline Prices

The Effects Of Supply And Demand When Oil And Gas Price Increase

By July 13, 2015No Comments

Gas prices are going to change. This change is a fact of life for drivers all around the world. The reasons behind why gas prices change are often complex and hard for most people to follow. What is easier to understand is the role of supply and demand when it comes to gas prices.

The basics of supply and demand

Oil and gas are commodities that people want to purchase and they are products that companies want to sell. The prices for those commodities will fluctuate due to supply and demand.

When consumer demand for a commodity rises, the supplier will meet that demand at a higher price. In the gasoline market, the summer driving season is a good example. Many fuel retailers, especially along interstates and major highways, will raise prices to meet the increased demand for fuel by the traveling public.

When demand decreases, the supplier will lower prices to encourage consumer purchase. When the summer travel season is done, demand for gas drops. Many fuel retailers will lower their prices to entice their regular customers to come and fuel up.

As supply increases, suppliers will lower their prices due to the abundance of product. This encourages consumers to purchase more. In the past few years, increased supplies of U.S. crude oil has helped to lower oil prices. This increased supply has lead to decreases in the price of gas at the pump.

When supplies are decreasing, suppliers will raise the price due to the scarcity of the resource. In 2005, Katrina knocked out production on several oil rigs in the Gulf of Mexico as well as stopped refinery output in Texas and Louisiana. This drop in supply translated to higher prices for oil and gasoline.

Supply and demand on a global level

There is an ever-increasing demand for crude oil and gas in industrialized countries around the world. While demand is at a global level, many of the richest supplies for crude oil are not located close to those industrialized nations, making the supply and demand for oil and gas an international affair.

The countries that produce oil have a certain amount of control over where their oil supplies go. They put it on the international market and put it up for the highest bidder. This drives up the price of oil around the world.

Suppliers have some power over the price and supply of oil and gas

Oil producing nations have a certain amount of power over the price and supply of crude oil. Members of the Organization of Petroleum Exporting Countries (OPEC) often limit the amount of oil they produce to keep the prices up.

Refineries also play a part in the amount of gasoline available on the market. There is only a limited capacity for refining crude oil. Companies are less likely to invest in new refineries when crude oil prices are too low. These companies want to know that their investment will pay for itself in a reasonable amount of time.

Consumers follow the trend of supply and demand

When gas prices go up for any length of time, consumer demand goes down. People will make fewer trips and buy vehicles that are more conservative on gasoline. When gas prices go down, consumer demand will pick up. Consumers will be more willing to take road trips and buy vehicles that use more fuel.

Many consumers are getting around the fluctuations in gas prices by buying hybrid or electric vehicles, or going with alternative fuels like biodiesel. When purchasing a new car, consumers are taking advantage of new guidelines for improved gas mileage in new vehicles.

Supply and demand are going to continue playing a role in the price of oil and gas. This supply and demand is a part of the world of the fuel retailer and wholesaler. If you are in need of wholesale gasoline, contact us here at Kendrick Oil. Call us at (806) 250-3991 or email us with any questions or comments on our Contact Us page. You can always read more about our company on our website. We look forward to providing you with the best fuel products and services on the market.