Do you know exactly why fuel prices go down?
There is currently large discussion and support in our Federal Government to respond to what will certainly be a short lived “break” for consumers of low fuel prices. The government is entertaining raising fuel taxes as much as 18.4% My question is, will they lower them again when the the price of a barrel rises again?
Today, January 2015, we are experiencing an “unexpected” drop in the price of fuel. Have you recently posted a picture of your fuel pump online to express your disbelief and gratitude that you just paid less than two dollars for a gallon of gas? I personally went from spending $45 to fill up to only spending $23.
Now, my comment about this decrease being “unexpected” is not completely true. It is unexpected to me, but economists saw this coming. Based on world news and the laws of Supply and Demand, the implementation of drawing oil from rock shale deposits moved the supply variable up dramatically. Of course, when supply increases and demand remains the same, prices go down. One article by the Associated Builders and Contractors states that petroleum prices decreased 37% over the year of 2014.
It’s important to keep in mind that prices and quantities are the outputs of the supply and demand model, not the inputs. It’s also important to keep in mind that the supply and demand model only applies to competitive markets, i.e. markets where there are many buyers and sellers all looking to buy and sell similar products. Markets that don’t satisfy these criteria have different models that apply to them, and these are described in the “Types of Markets” category.
Because I am not an economist, I will tend to focus on the belief that “When the Big Dogs stop making money, we all stop making money.” If the oil production companies see a reduction in their profit, they will shift their pricing or production to deliver themselves back to a high profit margin. So many factors of world economy are impacted by oil production. It seems the Oil Tycoon’s Fancy to buy and sell us as their pawns. Not that we can argue, we need fuel to make our own money.
As a small business, Western Disposal offers pricing that will allow us to pay the bills, pay employees, and leave a little in the end of the day for profit. Our prices have allowed us to stay in business for 20 years. We do not expect to fluctuate with the drop in fuel prices as it will soon be replaced with an increase that will certainly last longer.