Why Do We Pay More For Gasoline In The Summer?

There are 159 liters (42 gallons) of oil in a barrel, and a refiner can produce about 1.78-2.54 liters of gasoline out of 3.8 liters (1 gallon) of crude oil. One barrel of oil will also produce approximately 64 liters of other useful petroleum byproducts such as plastics, propane, and ammonia.

At present 62% of the globe’s easily accessible crude oil is found in the Middle East with the major players being Saudi Arabia, Iraq, Kuwait, United Arab Emirates, and Qatar. There are four primary factors that regulate the price of this valuable oil.

a) Availability or supply of crude oil

b) Consumption rate of the oil

c) Financial markets

d) Government policies and regulations

Fundamental economics dictates that a high supply of oil will translate into lower demand, which in turn will cause for low prices, and conversely if we have a low supply of oil this will cause for a high demand and in turn higher prices. It is with this basic concept that oil is traded on the financial market. An oil speculator invests in oil futures-essentially betting on how much oil will cost at a future date. Government policies and regulations also have a major effect on oil prices, for example laws designed to prevent climate change are enforced through taxation, and this raises the cost of gasoline for the consumer.

An important factor that also governs the price of crude oil is that for the past 50 years it has been priced in U.S. dollars, so fluctuations in that currency can cause for movements in the cost to purchase a barrel of oil. There has been recent talk of switching from a U.S. dollar denominated transaction to either the Euro, or a basket of currencies. It is yet to be determined if this will pan out.

Finally, we would like to end the discussion on pricing by mentioning that in the year 1956 a geophysicist called Hubbert theorized that the world would eventually reach a peak production level for oil, and he coined the term “peak oil”. Once this level has been reached, the world would slowly start to deplete its oil reserves and this would cause for a dramatic and fatal rise in prices.

So why does gasoline cost more in the summer? Well there are a multitude of factors for why gasoline tends to be more expensive during the summer months, and one reason is because of increased demand-better weather, resulting in more motorists on the roads. Another key reason is that when the weather starts to warm up, utility companies temporarily close some of their refineries so that they can perform necessary scheduled maintenance, and this can led to disruptions in the supply chain for gasoline distribution. Something else to consider is that there are actually two blends of fuel: winter-grade and summer-grade gasoline. In the summer, refueling stations have a seasonal transition because the summer blend helps to provide for a reduction in smog during the summer ozone season that takes place from June 1 to September 15 of every year. This initiative was launched in the United States in 1995 as part of the Reformulated Gasoline Program (RFG). So how exactly does a summer blend help to reduce pollution? Summer-grade gasoline contains fuel additives known as “oxygenates” that burn cleaner, and this is useful in pollution reduction during the summer season. To learn more about crude oil read this book.

Source by Ashbee A. Bakht

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