Gas prices and $100 oil

[Comment Below]

By Matthew Stephens

This week, a barrel of oil closed near $100, but why are gas prices still the same as when oil was $75 per barrel?

The refiners say gas prices are two-thirds controlled by the crude price. If that held true from one gas price to another, gas should be at $4 right now. Well it’s not that expensive, but gas is headed higher in a time when it should be slumping.

In an editorial for the Oil Price Information Service, Tom Kloza stated that crude prices would need to be around $125 per barrel before the average price of gas reaches $4.
So why the disconnect from crude prices? Well, the simplest explanation is supply and demand. Consumers buy less gas in the winter, which leads to lower refining margins (also known as the cracking spread).

In a usual seasonal change, the price of gas falls by 20-50 cents per gallon. In fact, last year prices fell 80 cents per gallon between the end of summer and Halloween. As it sits now, a small uptick in gas prices is likely this season.

The astronomical crude prices will directly affect home heating oil users, as well as diesel consumers. Heating oil prices are expected to increase 25 percent over last year’s already high prices.

Airlines are raising prices to help keep themselves in the black, as jet fuel will increase with diesel and heating oil. So if you plan on flying, it might be better to buy your tickets sooner rather than later.

One thing is for sure, if crude prices stay at or above the $100 per barrel mark, this summer’s gas prices will be near $4. Certainly there will be many hybrids sold here in America as consumers seek relief from high gas prices.

E-mail the author at Matthew@tigerweekly.com

Originally Published: Issue 587 - November 14, 2007

Share on Facebook

Back to the top