EnergyFactor By ExxonMobil | Pespectives has a new home

It takes billions of participants to make a market

In my previous post, I noted a number of the factors that experts are citing to explain the recent increase in U.S. gasoline prices. These range from increased global crude oil demand to unplanned refinery outages.

Such explanations are fine as far as they go and worth keeping in mind. But there is a larger point I want to emphasize, which is that there is never any one specific factor that fully accounts for the total price consumers pay at the pump.

Similarly, it’s important to remember that the global market for crude oil and petroleum products is so vast, with so many participants, that no single one of them – no government, no corporation, no organization – is capable of dictating the global price for oil. Those prices are set according to the laws of global supply and demand.

The aggregated actions of a wide range of actors

I know that concepts like “supply and demand” can sound a bit abstract. What that really means is that the price is determined by the aggregated actions of billions of market participants around the globe – everyone from individual drivers filling up the family car to large businesses, like airlines, that purchase and consume tremendous volumes of fuel.

There are also indirect consumers who buy products that require energy for production and distribution. That includes almost everything in today’s modern society, from eggs and frozen dinners to electronics and automobiles.

Add to the mix the output of producers ranging in size from small independents to state-owned oil companies, as well as the actions of people who refine and transport oil. These include pipeline operators, railroads, barging companies and workers in shipyards building new supertankers.

On top of it there are government officials and policymakers at every level whose regulations and taxes can have a profound effect on production, distribution and consumption of crude oil and petroleum products – often creating localized economic distortions as well. Perhaps the best example is Europe, where taxes in many countries raise the price of gasoline to more than twice what Americans pay.

Another example can be found closer to home, in California, where state-specific fuel standards, isolated logistics and only-in-California regulations often lead to higher prices than can be found in other parts of the U.S.

There are a host of other market players, so that there seem to be an almost infinite number of interconnected moving parts that make up the global fuels market. Every one of these players – big and small – influences the market to a degree and contributes to setting the prices consumers pay.

Spanning the globe

In every instance, every day, the actions of market participants are governed by an almost inexhaustible variety of desires and incentives and insights and goals. These are the daily decisions – reflecting, for the most part, voluntary exchanges between buyers and sellers for mutual benefit – that set the price of oil, and with it the price of gasoline Americans pay to fill up.

It’s certainly complicated, given that the petroleum market spans the globe. It can be opaque and even confusing at times. But as I wrote earlier, it’s not altogether a mystery.


  • Worth a deeper look...