11/12/2014 - Industry insights
Seven consecutive drops in petrol prices at the pump have got people wondering what is happening.
So what is special about now? Why have there been so many price decreases at the pump? The volatility in the pump price is primarily driven by movements in crude oil prices, refined fuel prices and foreign exchange rates.
The pump price is currently lower because of:
As it happens, instead of a ‘perfect storm’ we are having a ‘perfect day’.
With our industry there is a long journey and a huge number of factors that come into play at a macro-economic level before we get to the domestic price at the pump.
The best place to start is with the current cost of crude oil and why that is down.
Three key factors are impacting on the cost of crude oil:
Behind each of these reasonably straightforward factors are more complicated things at play.
In the wider economic picture there has been a slowing down in economies, however, the American economy is growing quite well and shale and fracking has put money into a number of poorer states. This could change – with lots of oil in the market causing a reduction in the cost of oil, how low does the price go before the new production in the US is not profitable?
Politics within the industry, particularly within OPEC impacts the price of crude as does the macro-political environment in the Middle East. In the recent past OPEC countries have agreed on production quantities (“quotas”) to keep the price up at about US$100 a barrel, however, in a stand against some of the other OPEC members and the US and Russia, Saudi Arabia in particular is continuing to produce oil above their quota because the price per barrel is not quite as important to them.
Lots of oil in the market means more competition, which means lower prices.
We get that this close to Christmas not everybody will be up for this, but if you’re interested in understanding the latest research on what... read more