Gas prices go up and down. It’s an uncomfortable fact of life.
Why does this happen?
It starts with the crude oil that is converted to useful fuels like gasoline, diesel, and heating oil. On the most basic level, fuel prices increase or decrease along with the price of crude. But there are other factors that may impact prices.
Why Does the Cost of Crude Change?
An important factor that impacts the price of crude oil is supply and demand. Global economic conditions, such as the growth of the middle classes are creating rapidly increasing demand for oil worldwide, which pushes prices higher. Same goes for unrest in the Mideast and North Africa, which puts supplies at risk.
One downward pressure on gas prices is innovation including new discoveries or the advent of new technologies. One example of this is the Canadian oil sands, which until recently were considered too expensive to develop; now, thanks to new technologies, this truly vast energy resources is being tapped.
Many factors that can impact oil supply and demand—severe weather, particularly hurricanes; new supply discoveries; inventories; exchange rates; investments; technological advancements; spare capacity; OPEC production decisions; and what non-OPEC suppliers do. All can have a negative or positive impact on crude oil prices.