demand for gasoline product and Factors influencing it

The price of gasoline is a crucial element that determines demand. According to the law of demand, people will buy more of this product when the price is low and less when the price is raised. The following causes cause a rise or fall in gasoline prices: federal, state, and local taxes, seasonal and weather effects, the Organization of Petroleum Exporting Countries, political instability, and financial turmoil (Bennett, 2015). For example, an additional tax might raise prices, lowering consumer satisfaction and, as a result, lowering demand. Second, consumer income can have an impact on fuel demand. If the individual’s income rises, the ability to purchase goods and services shall increase and henceforth an increase in demand of the gasoline product. It is from this perspective that people tend to spend more when there is plenty of money, to do things that were not accomplished when income was not high.

Thirdly, population density in a given location increases potential demand for the gasoline product since high population increases the number of customers as opposed to a lowly populated area. Moreover, public transportation is another factor whereby if individuals will not prefer driving there can be a decrease in demand as fewer gallons shall be sold (Holditch & Chianelli, 2008). Additionally, the price decline in crude oil which is a substitute product for gasoline results in a fall in demand for this product. There exists a strong close elasticity of demand between crude oil and gasoline. Also, speculation of price increase or decrease in the future determines the demand in the current market. Lastly, the seasonal and weather changes determine the demand for gasoline. For example, people will travel more during warmer temperatures, thus increasing the demand during summer.

Factors affecting the supply of gasoline product

The price for gasoline influences its supply. When there is a price increase of gasoline resulting from factors such as an increase in taxes discussed above, there shall be more supplies of gasoline. Moreover, changes in the seasons can affect gasoline prices and henceforth lead to a decrease in supply due to reduced production during the unfavorable periods. The occurrence of adverse conditions and events may also lead to shutting down of refineries that eventually disrupt the supply of gasoline to different destinations, hence a decrease (Holditch & Chianelli, 2008). Additionally, when the costs of production for gasoline increases, there shall be a reduction in its supply. Most importantly, the global supply of gasoline products is majorly influenced by Organization of Petroleum Exporting Countries that set production targets for the members during refining, distribution, and marketing. The increased use of new technologies enhance more access to gas from the reservoir and thus reduces the costs to find and produce one gallon which in turn leads to an increased supply of the end product. The government policies also influence the supply of gasoline. For example, an increase in excise duty may result in a decrease in supply.

Impact of supply and demand changes of gasoline on equilibrium price

If there is a fall in gasoline supplies, it means that the pump prices at the refineries shall rice. However, if the supply increases, it shall imply that the equilibrium price can fall thus increasing the quantity of the product. If the refineries produce more of the gasoline, it means that there is a likelihood of a fall in pump prices when there is no any corresponding increase in the demand for the product. If the demand increases and the supply tend to hold steady, there shall be an increase in the gasoline equilibrium price and quantity. For example, the pump prices always rise during summer when most people drive to their homes on the weekends. Lastly, when the demand for gasoline decreases, while holding supply steady, there will be a reduction in the equilibrium price and quantity demanded in the market.

Therefore, a surplus shall mean that vendors of gasoline will have to lower the prices as a way to clear out their inventory while in a shortage they will have to raise the gasoline prices to meet the increase in demand. Hence in both cases, the price shall converge towards equilibrium price which can either be lower or higher than an original market equilibrium price. It can be concluded that when the demand decreases, a supplier has to lower prices to encourage the consumer purchase due to abundance of the gasoline product and if supplies are falling there is need to raise prices due to the scarcity of resources

Anticipation of changes in the future

There is an anticipated growth in the global demand for energy since oil, gas, and coal shall continue being primary sources of energy. It is according to a report in the United States by National Petroleum Council. Hence, in the future, the energy industry shall increase the supply of gasoline to meet the anticipated rise in demand. The development of material that can withstand high pressure through the use of enhanced technology advancements shall make it easier to exploit conventional and unconventional reservoirs in an environmentally accepted manner. Thus lead to more supplies available at low costs of production. Furthermore, changes in lifestyle and fashion shall make people prefer driving as opposed to public transportation. Hence increase in consumption of gasoline which in turn results in an increase in price. Eventually, suppliers shall increase the rate of supply which is explained in the law of supply whereby price increase leads to a rise in supply. According to Holditch & Russell (2008), these changes shall come as result of an increase in the world population and a desire by many people worldwide to improve the standards of living.

References

Holditch, S. & Chianelli, R. (2008). Factors That Will Influence Oil and Gas Supply and Demand in the 21st Century.

https://www.cambridge.org/core/services/aop-cambridge-core/content/view/S0883769400004772

Bennett, J. (2015). Behind the Signs: Factors That Affect Gasoline Prices

https://www.stlouisfed.org/publications/inside-the-vault/spring-2015/behind-the-signs