gas and oil prices april 2014

As a financially conscious consumer I am all too aware of the trends in gasoline prices. Every day I go past the same 2-3 stations and keep an eye on the prices. As an economically minded person I’m also informed of the various drivers of gas prices fluctuating up and down. The biggest driver is of course the price of oil.

As the price of oil moves up or down, so does the price of gasoline. This means the two prices have a correlation. So when I see that gasoline prices have not been keep up with oil, I get frustrated. Correlations are never perfect, but when a correlation breaks down you must go looking for other explanations for why gasoline prices are what they are. As you can see in the chart, gasoline and oil seem to have a different opinion lately on whether the price should be increasing or decreasing.

There are any number of reasons why this could be the case. Oil and gasoline are different types of fuel. We can have tons of oil and little gasoline because refineries aren’t working. These can have regional impacts as well. Not every part of the country uses the same type of oil in their fuel. So the northeast can have a crunch in supply while the Texas has plenty. But it would take a few weeks for the supply to fully reach the demand up north.

Gasoline also goes through seasonal fluctuations in its pricing that oil doesn’t really experience. In the US, refineries are known to slow down production in the spring to clean everything out, which can shrink supply a bit. Very soon we will switch over to the summer blend of gasoline as well which burns a little cleaner, but is also more expensive. This has been the case since the mid 1990s.

For whatever the reason is currently, gasoline prices are not being driven by oil prices. But rest assured, the correlation will return.

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categories: economics, environment, personal finance