It’s pretty rare to find someone who doesn’t feel the impact of gas prices on their lives. Indeed, the price of gas is a critical foundation for our economic progress, inflation, and the ability of the economy to grow. Various factors — including crude oil prices, production costs, transportation, taxation, and more — impact gas prices. Given how deeply relevant it is to our ability to conduct business and move goods, the impact of gas on our economy cannot be understated.
Just as important as the impact of gas is the impact that price volatility can have. Specifically, price volatility can majorly impact employment within the energy sector.
How Gas Prices are Decided
Like all facets of the economy, the energy sector is deeply influenced by multiple impacts. These components all significantly affect gas prices and the energy sector.
Crude oil prices are the most important factor in gas prices. Crude oil is extracted from underground oil fields and processed into one of several fuel sources, including gasoline. Crude oil can be viewed as the source of all gasoline, which helps explain how it impacts banking and energy prices. Crude oil prices are driven by supply and demand issues. For a recent example, remember the height of the COVID-19 pandemic, when travel and driving habits dipped to the lowest rates in decades. As a result, the price of crude oil dropped by as much as 49%.
Crude oil must be refined into gasoline. These refining costs are passed along the entire financial chain, ultimately reaching the consumer. As refining costs rise, so does the price of gas. Some refining costs are fixed and will impact various crude oil products, including diesel or other fuel sources. This means that various fuel sources may arise if one particular chemical rises in cost.
From there, gasoline is transported from the refinery to storage and warehouse facilities. This distribution and transportation cost involves several factors, including the physical plant, trucking fleet, and staff to man both. It’s also worth noting that gasoline is required to transport gasoline, creating a strange cyclical reality: The price of gas can impact the price of gasoline.
All gasoline companies engage in some form of marketing, and the marketing campaigns consumers see will impact gas prices. However, these costs usually have a lesser impact than the price of other factors noted here.
All government units have some sort of gas tax. In the United States, Americans pay 18.4 cents per gallon. All states also enact a gas tax, and many local government units do.
Finally, the role of global events and conflicts cannot be understated. Indeed, conflict around oil and gas is endemic in world history. When there is war, critical gas infrastructure is often targeted. This helps explain how it impacts investments: In the event of war or conflict, transportation of gasoline is harder. Prices may rise to pay for additional security, repair damaged infrastructure, or meet other costs associated with global conflict.
What does all of this mean? Simply put, the supply chain — and the number of factors that impact the price of gasoline — are deeply complex. Understanding what these factors are and how they interact are key to understanding the movement of gas prices.
Key Players Responsible for Gas Prices
Circumstances outside human control influence many factors. This can include natural disasters or broader economic forces. However, groups of individuals tend to have a major impact on the price of gas.
OPEC — or the Organization of the Petroleum Exporting Countries — is chief among them. The organization consists of a dozen countries. It essentially acts as the governing body regulating oil production and sale worldwide. This makes the organization one of the most economically powerful forces in the modern economy. They constantly look to determine changes to the price of oil and how they impact investments. This also means that other countries worldwide must strive to maintain good relations with these member states.
Refining companies also maintain outsized control over the price of gas. The specific blend of fuel used and products added can make gas prices more or less expensive. Like other actors on this list, refining companies have their profits dictated by circumstances outside their control. These impacts include the cost of labour, chemicals, and government regulations.
Retailers and distributors will also impact the price of gasoline. Like other sectors of the economy, local stations set the final gas price. Location, transportation costs, and overall market competition impact these prices. Retail establishments must also manage costs, including staff wages and other overhead. These expenses are typically factored into the cost of gas the consumer pays. This economic reality explains why gas often costs more when unemployment is low: More people working means wages must be increased to hire qualified staff.
Finally, governmental and regulatory bodies play a key role in the price of gas. All government units have regulatory and environmental standards that gas companies must meet. The strength of these regulations may add time and cost to the gas price. These costs are then passed on to the consumer. Governments, of course, are influenced by the public and lobbying groups. This means they are not immune to pressures to enact policies that will reduce gas prices. However, these policies, such as reduced regulations or taxes, may have major negative consequences. As such, governmental bodies are perpetually locked into a cost-benefit analysis to determine if the burden of taxes and regulations is too strong.
The complex nature of these different actors does not exist in isolation. For example, western governments regularly push OPEC to increase production to keep the price of gasoline down. Refining companies and large energy corporations often lobby for reduced regulations or taxes. As part of their argument, they will note that these changes may enable them to lower prices.
The Impact of Price Fluctuations on Jobs in the Energy Sector
Price fluctuations can have a major impact on jobs within the energy sector. These fluctuations are distinctly related to a variety of outside economic pressures. Fortunately, these challenges can be anticipated in many cases, allowing industry leaders to structure their operations appropriately.
Like all other industries, the energy sector often undergoes standard boom and bust cycles. Price increases can be good for the gas industry. In most cases, they lead to additional exploration, drilling, and production resources. Unfortunately, the reverse is also true. Price decreases usually mean a reduced profit margin, which can lead to industry contraction and job losses.
Broadly speaking, the energy sector is shifting towards more renewables. This reality has led to real job changes as more people use renewable fuel sources. As demand for renewables continues to increase, additional jobs will be created. Conversely, jobs in traditional energy sectors — including oil and gas — will likely decline. This circumstance may create additional price pressure by organizations, such as OPEC, to increase production. Doing so may create additional jobs throughout the entire energy pipeline. It may also decrease prices and thus increase demand.
As noted above, higher prices can often create job opportunities. This is particularly true for refining and transportation, where higher prices may mean more job opportunities. Unfortunately, the reverse is also true. Downturns can impact job profitability by lowering profit and creating less room for expansion.
What You Need To Know
People often look for simple, easy-to-understand solutions when gas prices rise and fall. Unfortunately, such solutions are rarely available. Gas pricing is extremely dynamic. Multiple factors can drive the price of gas up or down. This price has a major impact on job stability and growth within the energy sector.
Understanding how these factors interact helps illustrate the volatile job market in oil and gas. It highlights the importance of adaptability within the industry, including how it impacts banking, investments, job growth, and more.
The price of gas is deeply intertwined with the world’s economic success. Virtually all businesses must monitor this price to determine the most efficient and effective way to conduct business. If you need assistance in monitoring broader economic trends or developing a recruitment plan to fit your needs, we’re here to help. Contact the MRINetwork today to learn more about how we can help your business thrive.