Reason Why Gasoline and Crude Prices do not always Move in the Same Direction

Gasoline price has not always been in accord with crude oil price. This is one of the reasons why many motorists are frustrated in spending for high gasoline prices when crude oil price falls or stays the same. It may seem that the costs of both must closely coincide with each other since gasoline comes from crude oil. But, even if their markets are related, they are separate and do not go in conjunction with one another.

According to the Energy Information Administration in the United States, regardless of how much oil prices influence diesel and gasoline prices, the rate of supply compared to the demand for both fuels are crucial. Suppliers of diesel and gas perform a balancing act wherein they attempt to fit the real and anticipated end-product demand to the available stocks.

Fuel stocks give a cushion versus market forces like up and down movements in demand and supply or alteration in oil prices. Moreover, they are important in setting costs of fuel. Although crude oil prices are falling, a decrease in diesel or gas supply when demand is high can lead to increases in the prices of both fuels. Moreover, even if there are increases in crude oil prices, diesel or gas prices could fall if their supplies are high compared to demand.

An example of this is the spike in fuel prices way back in 2008. Crude oil and gasoline prices initially increased even if sufficient supply and slow demand blunted several effects. Increased gasoline prices lead people to purchase a smaller quantity of gas and started to lower by the mid parts of July.

In the month of September, Gustav and Ike hurricanes damaged refineries in the Gulf Coast and greatly hampered gas supplies leading to record breaking gasoline prices during the time when crude oil prices were dropping. In the middle parts of October, the stock concern had been fixed and prices at the pump were decreasing together with crude prices.

By Chris Termeer

Chris Termeer

Chris Termeer is an oil and gas consultant, industry commentator and analyst. His book, Fundamentals of Investing in Oil and Gas provides a comprehensive overview of all aspects of the oil and gas industry, including exploration, drilling, production, storage, transportation and refining, to name but a few.

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