The Major Factors That Contributed To Low Gasoline Prices

There are quite a lot of reasons why gasoline prices today have now reached an all time low and are still expected to go even lower. It’s not that people are complaining about it but there are some people who are curious even suspicious as to why this happened. Besides, just a few months before, gasoline prices skyrocketed and reached an all time high. It can even be considered as the highest in decades.

So, why the sudden drop in the price of gasoline? Is there something you don’t know that you should know about?

Well, the recent drop in the price of gasoline is not really a mystery that you need to worry about. There are a number of reasons why the price of gasoline has significantly reached an all time low.

The primary reason for the drop in the price of gasoline is the low demand for gasoline. The gasoline reserves in the world are also very high. Now, as the law of supply and demand suggests, low demand with high supply means lower price. As a businessman, you want your products to sell. And, if no one wants it or there is limited demand for it and you have a lot of it in stock, the way to sell it and get people interested in buying your product is to lower its price.

In turn, there are also reasons why supply for gasoline and oil is very high. Basically, oil companies anticipated Asia to continue on growing. In early 2008, Asia’s demand for oil was growing rapidly and oil companies were afraid that the world oil supplies will never be able to keep up. So, logically, they increased production of oil and gasoline. In fact, there are also some speculations that there had been some stockpiling of oil and gasoline prior to the Beijing Olympics.

However, when the world financial crisis hit, there was a significant drop in Asia growth. There are also indications that the growth in Asia is starting to cool down. This left the oil companies with vast supplies of oil and gasoline meant to supply a growing Asia that was overestimated. What this meant was there was a surplus of oil and gasoline currently in stockpile with diminishing demand for it.

Another reason why gasoline is priced so low today is because of the rise in the value of the dollar. Basically, you need to understand that the higher the value of the dollar, the lower the price of oil per barrel which is measured in dollars. Today, the value of dollar is high so the price of oil is low. Also, because the value of Euro has declined against the dollar, it will also contribute to lower gasoline and oil prices.

Another good reason is the world financial crisis. This forced investors of hedge funds to liquidate their positions. Basically, oil futures are the first one they sell on the market because it is the easiest to sell.

These are the major factors that contribute to low gasoline prices. All in all, the world financial crisis as well as the increased supply and decreased demand for gasoline are the primary contributors of low gasoline prices. However, you need to remember that oil and gasoline price is still quite volatile. A small change in the demand or supply can have a huge change in the price for gasoline or oil.