Recently, the gas price in the country has been hiking up. In fact, this is what happened globally too! Did you know why?
What Impacts Gas Prices?
First, let us understand what impacts gasoline pricing. Most of the time, it is directly related to high crude oil prices. Oil costs account for 43% of the price of regular gasoline. The remaining 57% comes from distribution and marketing, refining, and taxes, which don't change as frequently as oil prices do.
With that in mind, let’s see what are the three main factors that determine the underlying oil prices, such as supply and demand, commodity traders, and dollar values!
1. Supply and Demand
Like most things in the market, supply and demand affect both gas and oil prices. When demand is greater than supply, prices rise. For example, the Russia and Ukraine conflict and the sanctions along with it have driven these prices even higher and caused the price of oil to skyrocket as you can see in the graph below:
2. Commodities Traders
Traders of commodities, such as gasoline, wheat, and gold, also cause high gas prices. They buy oil and gasoline on the commodities futures markets. Those markets allow companies to buy contracts of gasoline for future delivery at an agreed-upon price. However, most traders have no intention of taking ownership. Instead, they plan to sell the contract for a profit.
Both gas and oil prices are affected by the ups and downs in these futures contracts. The price depends on what buyers think the price of gas or oil will be in the future.
3. The Value of the Dollar
Gas and oil prices also rise when the value of the U.S. dollar declines as the transaction depends on this currency. We can see this when oil prices rose between 2002 and 2008 as the dollar depreciated significantly during that time.
Now you understand why it is pricier to pump gas to your bikes, time to look for deals that can save you some money. Sign up for RHB new debit card and stay tuned for card-owner-exclusive deals we’re about to launch!
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