What Considerations Affect the Cost of Fuel Oil?


Quick Answer

The primary factors that affect the price of fuel oil are supply, demand and government regulations. Supply and demand directly impact the prices, while regulations impact the cost of producing and delivering the product, thus indirectly affecting the price of the final product.

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Full Answer

Oil prices increase when the supply is disrupted, causing a shortage in the market. Common causes of supply disruptions include political tensions, such as the war in Iraq, and inclement weather that affects production or delivery. Because the Western world depends on oil as a major power source for a multitude of essential daily operations, consumers have no immediate choice but to pay higher prices for the oil they need. If alternative energy sources disrupt this dependence on oil, then supply limitations would have a less drastic impact on oil prices.

Government regulations often increase the price of producing and delivering oil by requiring companies to meet strict production and transportation guidelines. While these regulations are often necessary to protect consumers, companies take these increased production costs into account when determining the price of their products, thus passing the cost of regulations on to the consumer. In the US, limited availability of drilling permits and federal regulation of offshore drilling and exploration also affect the supply of oil.

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