We often see news scrolling in TV channels that the government has either raised or reduced in oil prices. Major part of public has a common opinion that it is the greed of government or companies that drives the oil prices high though the same opinion doesn’t have any value when there the government cuts prices. Though democracy gives us a right to speculate and form opinions, many a time it is necessary to adopt objective thinking and look on hard facts. Let us have a look at some factors that influence oil prices. Though most of them are relevant to global oil prices, they do have bearing on Indian scenario too. Oil being an international commodity and its prices can get influenced by raise in demand elsewhere.
The below discussed are some of the factors that affect the oil prices that give us a basic understanding of how the prices get affected.
1) Weather and seasons: Do you believe seasons have an impact on oil’s (petrol & diesel) demand and supply? Yes, in summer demand for oil increases as across the world several families go for vacation. As we are aware demand automatically increases the price. Similarly, winter also has a positive impact on demand for oil. Though this is not applicable to India, people in cold countries have a propensity to increase the usage of heaters thus propping up the demand for diesel. Thus the raise in demand for diesel oil spikes up the prices.
2) Demand for diesel vehicles: It’s a common knowledge that increase in demand for any commodity instinctively raises its price. Fuel is not an exception. Due to price advantage vis-à-vis petrol (gasoline), the demand for diesel vehicles has significantly increased not only in developed countries like US, UK, Canada, China, Europe but also in progressing countries like India. For instance in US the recent years have seen 40-50% of new vehicle registrations comprising diesel vehicles. The growing economies in China and India have increased the demand for diesel vehicles with more people going for personal cars facilitated by raise in their incomes. In India there is a considerable raise in vehicle sales of which 30% are diesel vehicles.
3) Global Factors: Crude oil being an international commodity the decisions took in countries like US or China or Middle East nations will have impact across the world. For instance a decade back USA decided to shift to ultra-low sulphur fuel. The process of converting diesel into ultra-low sulphur fuel is pricy, which spiked up the diesel price. Obviously such increase in prices would be transferred to the customers either countries or companies or end-users.
4) Transportation Costs: One major complaint we often hear about petrol and diesel prices in India is the variation among prices in states. For instance, the price of petrol in Karnataka is not same as the price in Tamilnadu. People tend to attach such price differences to the decisions of respective state governments. But the price may increase if the distance between distributor and retailer is more.
Wiseandhra.com brings more in-depth information and analysis pertinent to fluctuating commodity prices and technical factors involved.