What gives with the price at the pump?
My husband is obsessed with the price of gasoline. I get random calls during the day from him announcing the latest price. No “Hello.” No “How is your day?” Just a disembodied voice saying, “Do you know how much I paid for gas this morning!?!”
Who ISN’T talking about the price of gasoline? But I’m puzzled by something.
In the summer of 2008, the price of oil hit a high of $147. Prices at the pump skyrocketed to near $4 per gallon. Today, prices at the pump are also nearing $4 per gallon, but the price of oil is only $112 per barrel. What gives?
While gasoline prices and oil prices move together, it’s not necessarily in lock step. You can’t get gasoline without oil, but oil doesn’t always end up immediately in your tank as gasoline.
We suffered a global financial recession in 2008. As economies recover, the demand for oil naturally goes up. The emerging markets are ahead of the U.S. in the recovery stage, but China is only using about 5 percent more than they did last year.
A low interest rate policy by the Fed has many concerned about inflation in the future. Evidence of this comes in the decline of the dollar. Everyone trades oil in dollars. The combination has speculators salivating. They have been bidding up the price per barrel in anticipation of much higher prices down the road.
All this still does not explain the disconnect between price per barrel and price per gallon for today versus 2008. The only thing I can find that might contribute to this is the difference in refinery utilization. Currently, refineries are only at about 80 percent capacity. This is much lower than in 2008. So while the current price per barrel is $35 off the high, all that oil is not being converted into gasoline. Is that the whole story?
I don’t know. I just know that oil companies are making record profits, and my husband is still calling me with price updates.
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