First comes crude oil, then gasoline and then prices

Crude oil, as taken from the soil, does not have many uses, but the world is dependent on the products that derive from its production, which include gasoline, jet fuel, kerosene, diesel and asphalt.

The price of gasoline, one of the primary products refined from crude oil, is dependent on many factors, such as the price of crude oil, which accounts for about 50 percent of gasoline’s total value. Other factors include taxes, refining costs, distribution and the market.

In the United States alone, gas accounts for 17 percent of the total energy consumed, according to the U.S.Energy Information Administration.

The oil market, like any other market in the capitilistic economic model, is dependent on supply and demand.

Also, oil prices have increased over time because of inflation and population growth, which increases consumption as well.

Regulations, international groups play major role in oil costs

But oil companies and government regulations also have an impact on the price of oil.

For instance, the Organization of the Petroleum Exporting Companies, an international group created in 1960, regulates about 40 percent of the oil production worldwide, giving it a strong say in oil prices.

In a simple scenario, OPEC regulates its own market: if demand increases, OPEC could choose to increase its quota of oil to keep prices steady, or it could choose to lower the quota, thus increasing the price.

Countries in OPEC usually meet regularly to discuss prices, and since 1982, have met annually to set crude oil production quotas.

Natural disasters, wars are pivotal in short-term oil fluctuations

However, as influential as OPEC is on the oil trade, the market is also disturbed by natural disasters, recessions, wars and severe weather.

In the late `80’s early `90’s, for example, the price of oil rose due to conflicts in Iraq and Iran, and because the Unites Sates implemented tax controls on domestic oil production.

Although prices wavered during the ‘90s, in 2000 prices increased again because of the Y2K frenzy and booming economies throughout the world.

Since 2000, gasoline prices have more than doubled, reaching its peak five years later after hurricanes Rita and Katrina destroyed several offshore oil refineries in the Gulf Coast, one of three main refining centers worldwide.

This destruction added extra pressure to the two other major refineries in Singapore and Northwest Europe.

While some believe that the increase in prices is manipulated by the oil companies more than by weather conditions, William Lear, director of energy and gasdynamic systems at the University of Florida, believes that the prices will only continue to increase as long as the consumer is willing to pay the price.

“You can have fun with all kinds of imaginary scenarios that these guys (oil companies) really are the evil people trying to rule the world by keeping oil prices high,” Lear said. “On the other hand, maybe they are trying to save the world by making oil prices high enough that we use less oil and develop other approaches.”