The oil industry is a complex sector. There are many factors that ultimately influence the fuel prices in this industry. From weather to government policy and international politics, every factor has its own impact on these prices. The price fluctuations are somewhat controlled due to the availability of alternative fuels. However, in the longer run, local fuel prices largely affect almost every other industry vertically. Power plants rely on fuel types including IFO, diesel, and lubricant oil. They need a consistent supply of fuel at discounted rates to ensure effective power generation and distribution. The cost of fuels supplied to the power plants is also affected by significant factors influencing the fuel industry as a whole. Here, these key factors are explained:
Cost of Refining the Crude Oil:
Crude oil is refined into gasoline and diesel to make it compatible with the varied needs of this industry. The process of refining includes substantial costs that differ according to the origin and type of crude oil. It also involves the cost of equipment and maintenance using parts like double block & bleed valve. The cost of refining also varies seasonally and regionally in the United States. There are different formulations of gasoline to reduce air pollution. Apart from this, refining costs also depend on the ingredients blended into gasoline and diesel.
The Cost of Crude Oil:
Crude oil is the largest factor affecting local fuel prices for diesel and gasoline. The volatility in the prices of this commodity leads to fluctuations in fuel prices. Crude oil rates are affected by the global demand and supply trends. When the demands for distillate fuel like diesel increases in other countries, it influences the local prices as well. There are many countries relying heavily on diesel fuel for transportation and power generation. When demand surges in countries like China, the prices of crude oil correspond to demands with an increase. Also, the level of crude oil production affects the global and local prices of this fuel.
Distribution and Marketing Costs:
The cost of transporting fuel from oil refineries to power plants can be substantial. The process takes place through pipelines, barges, or trucks to the fuel terminals for final distribution. It involves the costs of managing the entire supply chain including salaries, insurance, equipment, and other overheads. In such conditions, power generation companies might have to automate most processes in order to manage supply chain operations effectively and efficiently, thereby reducing logistics and distribution costs. To manage supply chain parameters, companies can use Enterprise Resource Planning software (perhaps with the advice of Syte Consulting Group), and other comparable software that is equally effective here.
Local Taxes:
Fuel prices are also affected by the state and other local fuel taxes. Motor fuel taxes are imposed in most states for covering the construction and maintenance of roads. These taxes vary by jurisdiction. The states use different methods for imposing the taxes that ultimately affects the cost of fuel supplied to the local power plants.
These are the primary factors that directly affect the price of diesel fuel supplied to the local power plants.
