Despite the annoying price difference of 1 cent per liter nor gallon, some readers may be wondering why the gasoline price fluctuates. Also, some may think that the gasoline price will fluctuate depending on the domestic gasoline demand or its affected by Covid-19.
To prevent infection with the new coronavirus (Covid-19), masks have run out of stocks and are being resold at high prices.Therefore, It is often decided the price of goods is a balance between supply and demand due to cost and sales costs. The gasoline price fluctuates according to such a principle, but there is almost no price fluctuation due to domestic circumstances. You probably haven’t seen that the gasoline prices have risen and cars are rushing to the stands (although there was a long line of cars waiting for refueling after the Great East Japan Earthquake). Rather, gas stations are often quiet when the price rises. If there are no special factors, such as last-minute demand before price increases or supply restrictions in the event of a disaster, there will be no queues at gas(Petrol) stations.
First of all, since China’s economy was down from last year, the world’s oil consumption was sluggish and crude oil prices were gradually falling. Then now it is Covid-19(Corona virus).
The crude oil price (similar to the market price of gasoline) was at the most recent peak in October 2018 at $ 70 per barrel (159L), but then fell to below $ 50 at the end of the year of 2018. The price dropped and gradually recovered, with prices remaining around $ 60 in January 2020. However, due to this covid-19 shock, the crude oil price plummeted sharply, around 20 dollars per barrel in March 2020, and in the past two months the price dropped to one-third. The ups and downs of the crude oil price also directly affect the gasoline price.
By the way, many people are familiar with it because it is often heard in the news, but the crude oil price in the futures trading market in New York is often taken up as a trend of oil prices. The futures market sells and buys the right of the future purchase price, such as after 6 months or 1 year, and the actual products are traded based on the price determined by the futures market. The international indicators of crude oil prices are Brent crude oil prices in Europe, WTI crude oil in the United States, and Dubai crude oil prices in Asia, which are said to be the three major indicators.
It is common to use the purchase price delivered in the next two months as an index. WTI (West Texas Intermediate) crude oil traded in New York is a generic term for crude oil produced mainly in Texas and New Mexico in the southern United States. It is a high-quality light oil that has a low sulfur content and can extract a lot of gasoline. Actually, WTI crude oil is only 6% of the crude oil produced in the United States and 1-2% of the crude oil produced in the world, but it is an indicator because it is a high-quality crude oil.
There are also political moves to control crude oil prices
A shale oil-related company in the US, which had been strong until now, collapsed on April 1, 2020. In the background, in addition to the decline in demand due to the spread of new COVID-19 infections, the price of crude oil plummeted due to the termination of the coordinated production cut by Saudi Arabia and Russia. Crude oil futures prices in the New York market fell below the $ 50 a barrel, which is said to be a profitable line, and fell below $ 20 for the first time in 18 years.
Returning to the trend of crude oil prices, at the beginning of the Covid-19 Shock, the United States and other countries supported the purchase of additional oil by increasing the amount of oil reserves to maintain the crude oil price. However, the Covid-19 shock this time was not a small-scale economic crisis, as the market price was stabilized by that extent.
Why did the United States try to buy and support crude oil prices is to support the performance of shale oil companies?
Shale oil-related companies have to pay a considerable cost to extract oil and gas under the bedrock layer. Therefore, if you do not buy it at a certain crude oil price, you will not be able to make a profit. In fact, on April 1, 2020, one shale oil company declared bankruptcy.
◇ The trend of OPEC (Organization for Petroleum Exporting Countries), which consists of oil-producing countries such as the Middle East and South America, has a great impact on crude oil prices.
▽ OPEC is in the opposite position to reduce production. Conventional oil-producing countries, which have lower oil production costs than shale oil, want to pump out crude oil and sell it as long as there is demand.
For the royal family of oil-producing countries in the Middle East, a slight price reduction is not a trivial problem.Rather than that, it is more important to determine how much influence it has on the crude oil market around the world. It seems that if you have real power in the market, you will be able to deal with prices later. Now, it has some complicated story, but there is no doubt that the WTI index is a figure that tells the end of the gasoline price.
it is clear that the spread of the new coronavirus(Covid-19 ) will slow down the global economy and reduce the demand for crude oil. the price of petrol where I live(Melbourne Australia) is now very cheap. the news says first time in 12 years! just 91 petrol is now 90cents per Liter. I do drive a car with 98 premium petrol though when I went to petrol station the other day, It was about AUD$50 to fill up my tank. usually it costs me $75-80. however, the gasoline price has a gap between city area and country side. the channel 7 says that its about 50cents gap between those area. I use this App called Petrol spy so I can check which station has good deal. it’s very useful and very accurate. you don’t have to download it, you can use the internet to search.
Some people might wonder if it would be possible to win regular customers by significantly discounting the gasoline price as a customer attraction like a supermarket special sale product. However, the reason why it is not possible is that the breakdown of gasoline prices is too complicated. In the first place, products such as gasoline and light oil have a retail profit of about 5 cent per liter, which is a very thin profit.(Wholesale margins and operational costs account for around 5 cents per litre (ACCC). o The ACCC estimates that over the last 12 years after deducting those expenses the wholesale sector made an average annual net profit across all fuels of 1.7 cents per litre.) Australian institute of petroleum.
USA After credit card fees and other operating costs, net profit for gasoline sales averages 3 cents a gallon, according the National Association of Convenience Stores. Therefore, most gas stations secure profits by selling a certain amount and receiving a kickback called sales incentive from the ex-sale company.
After all, half the price of gasoline and light oil is tax. As mentioned above, if crude oil prices fall to one-third, it may be possible for gasoline prices to fall to nearly one-third, but crude oil costs account for less than 50% of gasoline prices. This means that even if the crude oil price falls to one-third, the price reduction factor is only about 30%. Still, the gasoline price still reflects only 10%, so there is a high possibility that it will still drop by nearly 20%.
However, it is said that there is a time lag of about one month before the crude oil price is reflected in the retail price of gasoline, and since the original selling company actually trades crude oil in one year later, the futures market There are some parts that are not on the market.
And even if the self-isolation, self quarantine due to the new coronavirus(Covid-19) in other countries was lifted and the daily routine was restored, the new work style such as remote work became widespread and the number of unemployed people increased, so it will not be easy to restore the original life. It will not be an economic activity like a year ago.
In that case, even if the gasoline price goes down, consumption may not increase so much. If the consumption increases, the crude oil price will rise again, so it can be expected that the gasoline price will rise again. there is always pro and con for this kind of situation but let’s see what is going to be happen next.
