Based on simple demand and supply analysis, the price of crude oil is a key cost of production for companies providing petrol and so when oil prices rise, it increases the cost of production and shifts the supply curve up to the left and hence prices of petrol begin to increase. Thus it is unsurprising that petrol prices rise with concern of supply and rising costs.
However, what if the opposite occurs? Crude oil prices have fallen by more then 40% since Mid 2014 but prices at the pump have fallen by less then 5% across the world. So what are the rationales behind this trend?
Firstly, in most countries petrol is heavily taxed for various reasons (raise tax revenue or control usage of cars)! Thus, we may have the cheapest crude oil prices now, but after taxes, it remains high. On the other hand, petrol retailing in most countries is operating in competitive oligopoly market structure. Now it is easy to understand why petrol retailing companies do not lower their pump prices. Ant attempt to lower prices will lead to price war which might not benefit the companies.
Lower crude oil prices in the world market thus have little positive impacts on consumer pockets :(
However, what if the opposite occurs? Crude oil prices have fallen by more then 40% since Mid 2014 but prices at the pump have fallen by less then 5% across the world. So what are the rationales behind this trend?
Firstly, in most countries petrol is heavily taxed for various reasons (raise tax revenue or control usage of cars)! Thus, we may have the cheapest crude oil prices now, but after taxes, it remains high. On the other hand, petrol retailing in most countries is operating in competitive oligopoly market structure. Now it is easy to understand why petrol retailing companies do not lower their pump prices. Ant attempt to lower prices will lead to price war which might not benefit the companies.
Lower crude oil prices in the world market thus have little positive impacts on consumer pockets :(
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