Question: Why is it that Gasoline Prices seem to rise so quickly, but fall so slowly?

Answer: When you see the price of Crude Oil sell for $46, that barrel of Oil won’t make it to your car as gasoline for as long as 3-6 months. Recall in May, the price of oil pulled back into the hi $30s — thats why gas dropped in price by more than a few cents in July.

There’s actually a good reason for the phenomena of retail gasoline prices rising quickly, but falling so much more gradually. Its strictly a function of competition in the marketplace.

When crude prices rise, all the gas stations raise their prices accordingly — they have no choice, otherwise they would be losing money on each sale. They all pay (more or less) the same prices for refined gas, and make a relatively small mark up on the fuel they sell. As wholesale prices rise, they pass along the increase.

When the price of Crude eases, however, what forces gasoline prices back down is simply competition. One station lowers prices a few cents, and pulls in more traffic; That forces others to do the same — until prices gradually work their way back down to the earlier prices (assuming crude returns to its prior price). While the retailers may make a greater profit for a few days, competition eventually forces them back to their original margins.

You may be surprised to learn that gas stations make the bulk of their profits on the quickee mart / convenience store, or on automobile repairs — and not on fuel. They are greatly incentivized to keep the prices low enough to draw you in as a customer, where they can make their profits on, well everything else beyond petroleum . . .

Resources: For additional information, see the following

WTRG Economics
(terrific resource for analysis, planning, forecast and data services for energy producers and consumers)

http://www.wtrg.com/

Prices: Crude Oil, Heating Oil, Gasoline and Natural Gas

http://www.oilnergy.com/1cashpet.htm#gaso

Gasoline Price Pass-through
by Michael Burdette and John Zyren
January 2003

http://www.eia.doe.gov/pub/oil_gas/petroleum/feature_articles/2003/gasolinepass/gasolinepass.htm

Gasoline Price History

http://www.ghg.net/stuart/gasprice/gasprice.html

Category: Finance

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

23 Responses to “Gasoline versus Crude Oil prices”

  1. Arch Stanton says:

    I would have to imagine then that gas retailers must really hate those pay-at-the-pump machines

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  9. allread says:

    How many gallons of regular gasoline are derived from the average 42 gal barrel of Crude Oil

  10. keith greening says:

    Back in November of 2004 crude oil prices were around $52/brl yet gas at the pump, in Michigan, was only $170/gal. This was oil company price manipulation pure and simple to soften the sting so people would forget about it and not use it as a reason not to vote for the Bush during the election.

  11. Alexis says:

    gasoline prices suck

  12. Wizer says:

    Crude oil prices have little or no effect on gasoline prices. In early part of 1999 I read an article that stated oil prices were at a 30 year low, yet gas was selling for about $1.20 gal. compared to 0.35 in 1969. I realize prodution costs would be higher, but almost 4 times? If, as oil companies would have us believe, gas prices are high due to the increase in crude oil prices, how come one of them posted a profit of over 200 BILLION dollars last year?? The oilman in the white house should be sent back to texas.

  13. How does the price for crude oil translate to price per gallon for gas for our cars?
    How many gallons of gasoline for our cars come from a barrel of crude oil?

    Thank you,
    cba

    C. Bruce Albert
    Senior Vice President, Client Services
    2920 Nth 7th Street
    Phoenix, AZ 85014
    cbrucea@transcorgroup.com
    http://www.transcorgroup.com

  14. Richard Magee says:

    I didn’t see your answer to a good question. Namely how many gallons of gasoline are yielded from a gallon of crude? In other words what percent of the retail price of gasoline is the crude oil expense? Seems to me it is not a one to one cost pass through! Lots of other fixed expenses related to it that should dampen the price increase of crude oil! So in simple terms how many gallons of gasoline are produce from a barrel of crude oil on average? Please E-mail me the answer.

  15. Don says:

    Where can I find a history of the cost of a barrel of oil vs. the cost of a gallon of gasoline?
    I would have to agree with the posting back on March 17, 2005 that oil has retreated in barrel price but not equally at the pump!

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  17. Pete says:

    “One barrel of crude oil makes about 19½ gallons of gasoline,
    9 gallons of fuel oil, 4 gallons of jet fuel, and 11 gallons
    of other products, including lubricants, kerosene, asphalt,
    and petrochemical feedstocks to make plastics.”

  18. Pete says:

    “One barrel of crude oil makes about 19½ gallons of gasoline,
    9 gallons of fuel oil, 4 gallons of jet fuel, and 11 gallons
    of other products, including lubricants, kerosene, asphalt,
    and petrochemical feedstocks to make plastics.”

  19. Steve Holle says:

    How long does it take the actual expense of a rise in crude prices to reach the pump. The oil that is gasoline today was probably priced very differently when purchased by the refinery. A rise in crude prices should not necessitate an immediate hike in the price of gasoline, rather, it’s an excuse. I think record profits by the oil companies says it all. Greed and speculation drive the price up. Crude prices are an easy excuse, the old “It’s not my fault” defense.

    It’s interesting also that you couple the rise in price to crude prices, which results in a windfall for producers because they get to increase their prices on product they’ve already paid for but the drop in prices to competetion which results in another windfall. I think we can all see who gets the ore and who gets the shaft.

  20. Mike Mallard says:

    When prices go up at a moments notice it is high profit no doubt. The fuel in the tanks is already payed for at one price. When it goes up in price at the pump in an hours time the profit margin increases greatly for all fuel in the ground at that time. The price fall never happens in hours time only days and weeks as explained. Much like an injection of money that tapers off. This is a business as any other and making a profit is the name of the game.

  21. Will says:

    Confused by various nonprofessional opinions…..Looking to purchase an old home. This home has oil heat as opposed to gas. What’s the difference in dollars and efficiency between the two? Should I sincerely think about converting? Please, just give me the bare fact(s)?

  22. Get Real says:

    Lets see we can go to mars. We can build a space station. You kind of get the idea. MB comes out with a car that is the size of my shoe and it only gets 35miles per gal. So why can’t we make a car that get 60 to 70 miles per gallon??? I have a 2 seater sports car that has a supper charger on it and I get 29MPG on the highway.
    You can kind of fill in the blanks. I have this feeling the good old American public is getting the screw job. I don’t hear anyone talking about this on the campaign trail. But we know big oil is a big backer of our dear legislators.

  23. Get Real says:

    Lets see we can go to mars. We can build a space station. You kind of get the idea. MB comes out with a car that is the size of my shoe and it only gets 35miles per gal. So why can’t we make a car that get 60 to 70 miles per gallon??? I have a 2 seater sports car that has a supper charger on it and I get 29MPG on the highway.
    You can kind of fill in the blanks. I have this feeling the good old American public is getting the screw job. I don’t hear anyone talking about this on the campaign trail. But we know big oil is a big backer of our dear legislators.