Gas Prices Up, Crude Oil Down?

A good article on the refining peculiarities behind rising gasoline prices and falling crude oil prices. Timely information for the torch and pitch fork crowd!

…crude oil closed just under $34 a barrel, its lowest point for 2009. But the national average price of a gallon of gas rose to $1.95 on the same day, its peak for the year. On Friday gas went a penny higher.

To drivers once again grimacing as they tank up, it sounds like a conspiracy. But it has more to do with an energy market turned upside-down that has left gas cut off from its usual economic moorings.

The price of gas is indeed tied to oil. It’s just a matter of which oil.

The benchmark for crude oil prices is West Texas Intermediate, drilled exactly where you would imagine. That’s the price, set at the New York Mercantile Exchange, that you see quoted on business channels and in the morning paper.

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.

The pitch and torch crowd should also realize that gas stations’ profit margins on gasoline stink – 6% nationally in 2008 according to an NPR story, even evaporating entirely for some stations. As the NPR story notes, gas station owners make far better margins on bottled water and other goodies for sale inside the store. In other words, it’s much better for business if you save on gas and buy snacks instead – that’s hardly a recipe for price gouging.

URLs: 

http://news.yahoo.com/s/ap/20090215/ap_on_bi_ge/gas_prices_unhinged 

http://www.npr.org/templates/story/story.php?storyId=10733468

http://www.venturacountystar.com/news/2008/feb/10/station-skips-deliveries-because-profit-margin/