A Couple of Reasons Why Gas Prices Might Not Track Crude Costs Very Quickly

The next time gas prices at the pump seem a little more than reasonable, why not try this: investigate just what causes and underlies such unusual seeming pricing. As might be expected, the price of crude oil on the world markets does, in fact, exert the greatest influence on the cost of highly refined gasoline. Looking beyond that headline reality, though, reveals that there is also quite a bit more going on. In many cases, overly high gas prices stem not from profiteering on the part of suppliers but conditions behind the scenes that are simply not always apparent.

As might be expected, it is typically most profitable to refine petroleum and sell the output closest to where it is pulled from the ground. While the many oil tankers that ply the world’s oceans do a good job of providing cheap transportation, anything paid to put petroleum in motion must add to the total tab, when all is said and done. As a result, producers and refiners generally strive to deal locally wherever, possible, shipping raw petroleum or refined output to other regions only when this becomes strictly necessary.

This reasonable approach to doing business is one reason why gas prices can stay high for some time even after petroleum prices start dropping. The ongoing demand for refined gasoline can easily outrun local supplies even as the price of crude on the world markets starts dropping quickly. With only relatively limited local stocks to work from, the refineries that turn thick, sticky crude into volatile, translucent gasoline do not always benefit from price drops right away.

This basic situation sometimes ends up being exacerbated due to other factors, as well. In some cases, troubles at particular refineries will mean that output drops right alongside the falling price of crude. When that occurs, the output-side supply pressure that results can help keep gas prices higher than they might otherwise be. While drivers often understandably fret when they are forced to pay what can seem like unreasonably high prices for gasoline, there are often good reasons for such issues. While the price of crude generally tells an important part of the story, there are often other details of less prominent sorts that matter just as much.


Categories: Financial