Portable Sanitation Association International

Association Insight March 31, 2021

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ASSOCIATIONINSIGHT Portable Sanitation Association International News BIWEEKLY EDITION MARCH 31, 2021 Page 2 Fuel Prices: What to Expect Ahead…continued from page 1 Continued on page 11 To better understand where we are and where prices might be headed in the coming year, we need to look past politics and focus on the real factors that will affect gas prices for your business. Components of Fuel Prices According to the US Energy Information Administration—an independent agency that provides statistics and analysis—the retail price of a gallon of fuel reflects the costs and profits (or losses) of producing and delivering the product to customers. Four main components contribute to the retail price of a gallon of diesel fuel including: • The cost of crude oil purchased by refineries • Refining costs and profits • Distribution, marketing, and retail station costs and profits • Taxes (federal, state, county, and local government) The relative share of these components in the price of a gallon of diesel fuel at the pump varies over time and by the region where it is sold. Averages are depicted in the infographic shown at right, and these were somewhat affected by the COVID-19 pandemic in 2020. Expect the longer-term breakdown of the price components to look more like the 10-year average on the left. The cost of crude oil is clearly the largest factor affecting costs at the pump in most years. The correlation between the price of crude oil and the retail price at the pump is easy to see when they are graphed together. The chart at left depicts the price of both over the past 20 years—a period during which there were four US presidents (two Republicans, two Democrats), and a host of other circumstances including wars, natural disasters, terrorist attacks, and a global recession. Regardless of any of those factors, you can see that the two sets of prices track with each other on a fairly predictable basis. Last Year's Low Prices Explained Oil prices are not a simple matter. They are driven by three things: current supply, anticipated future supply, and demand. Fuel prices dropped significantly in 2020 as consumer demand went down due to COVID-19. Lock downs, travel bans, workers and students staying at home, canceled events, and markedly fewer vacations all decreased the quantity of gasoline being purchased. These sudden and dramatic changes in demand initially left the market glutted with an oil supply produced in anticipation of a much higher need. As a result, oil prices dropped from $62.53 a barrel in December 2019, just before the pandemic began, to $19.33 a barrel in April 2020 when the global lock downs were going on and the market was awash in oil.

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