Many of us equate rises and falls in oil prices with the same in gas prices, and regard it as the sole determining factor. Unfortunately, that is not reality. The figure displayed over the pump is affected by a plethora of factors, including activity on a commodities exchange floor in New York, to the activities of competing companies.
When it comes down to it though, the price of oil, one of the most financially volatile substances on earth, is at the heart of what determines prices at the pump. Oil is a commodity, and a such, its price is not based on production costs, such as is the case with manufactured goods, but on the cost of replenishment or replacement.
Factors that affect the cost of oil replenishment include geopolitics, weather, foreign demand, and other factors. Once the crude is extruded, refinery issues, weather, regulations, and other factors will further determine the final cost of gasoline.
Most gas station owners only profit two or three cents per gallon on the fuel they sell. Often, it is not the fuel profit that puts food on the owners table, but the convenience store goodies inside. Gas prices are so competitive among retail points, that they often fluctuate numerous times per day.
– By: Stephen Calogera