Economic climates world-wide are significantly affected by changes in the supply and the price of diesel fuel. Transportation is a central ingredient of the majority of industries, and transport is reliant on diesel. With every surge in the price of diesel, the cost of moving products goes up, and therefore the price of the product goes up, also. You need to know the reason in order to find a strategy to slow down the increases.
There are some simple determinants of the cost of fuel. The biggest part of the cost is the price of the crude oil, which is approximately sixty percent, and that is just for the raw material. Crude oil still has to be filtered, an operation whereby low-sulfur diesel and some other petroleum products are extracted. Around 20% of diesel fuel’s prices are made up from obtaining around one tenth of a barrel of diesel from a full barrel of crude.
The rest of the price of diesel fuel is comprised of the amount it costs to market the product and distribute it, along with taxes by the government. A supplemental excise tax of 10% is included with the price of fuel produced within our borders. Even though it can’t attract the excise tax, foreign fuel does draw in import tax, which makes it more expensive than fuel refined locally. Although only five percent of the price stems from marketing and distribution, it is the component that affects the value of diesel fuel the most. The law of supply and demand is true for all commodities, so the price will go up when supply is low and/or demand is high. When the supply stays plentiful, the price will remain relatively consistent, and even go down at times of lesser demand.
When a country depends on another country for their oil, the purchase price they have to pay can be determined by the stability of the other country. Any time there are conflicts or embargoes are enforced, the price of crude and thus the price of diesel can go up. There are lots of factors that can cause another country to raise its prices, but for the most part, whoever is willing to pay the most money will get what they need. If you see increased prices at the pumps during particular times of the year, it is generally because of high travel so the demand has gone up, so the price goes up with it.
Occasionally the purchase price goes up if you have a forced shortage, which can happen when the supplying country is at war, or maybe just trying to prove a point. Unfortunately the consumer is left with the bill whenever oil companies opt for this way of competing for business. As a customer you have a single real option, which is to look for ways to use less fuel.
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