How do crude oil prices drop and gas prices go up?

I keep hearing in context of the middle east and in particular Libya, that crude oil prices are dropping for the barrel. I dont understand why gas prices are rising if that’s the case?

4 Responses to “How do crude oil prices drop and gas prices go up?”

  1. MarkG Says:

    Several reasons…
    Future contracts – A few months ago someone bought a contract to buy a quantity of gasoline at some price on a date some time in the future that could be one or more months in the future. If the contractor takes dlivery of the gasoline at the contract price they will pass the costs of the gas on to the consumer. If they bought the gas at a favorable contract price they can sell the gas for less and under cut their competition. If not they will pass on the cost of an over bid price and try to recoup some of all of their loss from the consumer. If they don’t take delivery of the product they and sell the contract (provided its at a favorable price) to someone else who will take delivery. If they didn’t buy at a favorable price and don’t take delivery then the contract is a total loss.

    Anything which threatens supply or the potential to interfere with production will cause uncertanty in the market and contracts will be bid at higher levels.
    Seasonal variations in gasoline formulation:
    As we approach the warmer months oxygenating additives like ethanol must be added to the gas so as to minimize the production of smog. Ethanol is an expensive additive .

    Seasonal variations in production:
    We have a limited number of oil refineries which try tooperate at nearly 100% capacity 100% of the time There is little slack in demand to allow much variation in production . Refineries need periodic maintenance and must also go through production changes to refine more heating fuel inlieu of gas for the winter. vis’e versa for the summer where additioal gasoline is cracked to meet summer time demand. As a result these same maxed out refineries interrupt their production for the change overs. As a result there is a interruption in supply with no corresponding change in demand hence supply and demand drives up price during low production periods.

    Unintended shutdowns:
    Nothing runs smoothly 100% of the time and as a result any unplanned disruptions to production cause shortages in supply.

    OPEC and the market

    You may notice that crude prices don’t rapidly rise and fall like some stocks.. OPEC controls production in responce to market prices (both up and down)for crude. They don’t want oil too cheap nor do they want it too expensive. Too cheap they don’t make as much and if its too expensive people stop using oil and demand drops.

  2. billrussell42 Says:

    Pipeline is the answer. The oil in the pipeline was purchased at the higher price. That is the oil that is in transit, or in the pipe, or in the process of being converted to gasoline, or sitting in the gas station tanks, or in a truck on the way to the gas station.

    .

  3. Joshua Says:

    its all about the money in reality gas should be about 2.50 for high test but instead its about 3.70 a gallon or where i live (hampton tn). but the guy that’s controlling all the gas is behind this he wont let it drop cause hes getting rich off of over priced gas in the billions of dollers rich its his greed that’s really ruining the usa. theres a saying the rich are getting richer and the poor are getting poorer b4 long there wont be a middle class. all because of some greedy ahole. it has nothing to do with pipelines or gas would have always bean this high.

  4. gatorbait Says:

    It’s a long way and a long time from the oil that comes out of the ground to get to the gasoline that is pumped into your car.
    When the price of the oil coming out of the ground drops, there is still a lot of the more expensive oil in the pipeline that has already been bought at the higer price and must be refined and sold before the less expensive oil can be refined and sold at the lower price.