Gasoline: Events Shape Pump Prices

World and national developments, ranging from political conflicts to natural disasters to economic fluctuations, can drive significant changes in gasoline prices. Currently serious political unrest in several Middle Eastern and North African countries is arousing concern that production from oil exporters in these regions may be reduced or pipeline and tanker transportation disrupted. While Saudi Arabia, with several million barrels of excess oil production capacity, has the capability to provide more oil to the world market. However, there are many logistical complexities associated with increased Saudi production which take time to work out. Meanwhile, the threat of less supply in the context of a strengthening global economy is a driving force behind the highest crude oil prices since 2008.

Other global or regional events that can develop rapidly and have a prompt ripple effect on gasoline prices include:

Hurricane Season. Powerful hurricanes in recent years have damaged oil and gas facilities in the Gulf and East Coast regions, causing short-term price increases in oil and natural gas. Last year, however, the major storms that entered those regions did not have a significant impact on energy operations. Hurricane season extends from June through November.

Infrastructure Disruptions. The temporary shutdown of two major crude oil pipelines from Canada to the United States last September-October may have contributed to an increase in oil prices. With Canada being the leading supplier of oil to the United States, the impact to prices could have been more significant if the problem would have lasted longer.

Overall, gasoline – like all commodities – undergoes price fluctuations caused by the interaction of supply and demand. The worldwide economic slump that began in 2008 caused a dramatic reduction in oil consumption as industries cut back production, vehicle transportation declined and airline travel slowed. Demand is now recovering in major industrial countries and consumption in China and India is accelerating again. The federal Energy Information Administration calculates that U.S. consumption of all petroleum-based fuels declined almost 6 percent in 2008 and by 4 percent in 2009, primarily because of the national recession. The beginning of the recovery in 2010 and the improving economic outlook for 2011 have prompted a rebound in oil prices.