Why Does Gasoline Go Up When Oil Prices Go Down?

Isn’t always interesting how when the price of oil goes up, the price of gasoline moves in tandem almost immediately even though the gas you were buying was refined from oil purchased at a lower price? It’s even more aggravating when the price for a barrel of oil goes down; the cost of a gallon of gas only creeps down, reluctantly, slowly. But it is downright infuriating when the cost of a barrel of oil is going down, and the price of gasoline goes up. What’s with that?

Well, here’s the answer. The Associated Press ran a story written by Chris Kahn and John Porretto about this very issue this past Monday. It was featured on AOL, so those of you read the article, accept my apologies. If you haven’t, you will learn something. The price of oil as reported on the business channels or in the newspaper is a benchmark price for West Texas Intermediate Crude. Believe it or not, it is actually drilled in Texas. I didn’t know that we had any oil left in Texas. Yippee-I-O Ki-a.

This is an extremely good grade of intermediate crude oil. It typically sells for more than oil that is imported. But right now, the American economy is in recession, and our “Texas Tea” cup runneth over, stored in Texas. There is so much of this oil stored in Texas, they are cutting back on drilling it because there is no place to put it…and recently was selling for about $35.00/barrel. That’s the price you see reported on the news.

Because Texas oil usually sells for more than the imported stuff, the refineries are set up to accept the imported oil. The east coast refineries, for example, use North Sea Brent Crude to make gasoline. That has recently been going up and price, selling for around $47.00/barrel, and continues to go up as OPEC cuts back oil production. Same goes with oil imported from the Mideast. So the refineries are actually refining oil that is imported from other places and costs more.

So why don’t the refiners use the Texas oil that is just sitting there collecting scum on the surface. No can do. Because the Texas crude normally costs more than the imported stuff, there are no pipelines from the Texas crude storage facilities to the refineries. As they say…you can’t get there from here. Ain’t that a kick in the pants?

The net result is that you can expect reported benchmark (Texas Crude) oil prices to hold steady. But if you want to see what gasoline prices are going to do, watch the Brent North Sea Crude oil price which is usually reported along with the benchmark price, and it is going up. The guys who wrote this article said that gasoline prices are will be around $2.50/gallon by summer.

Of course, these guys also reported that the refineries have cut back on refining operations because there is a recession, and why refine something that somebody isn’t going to buy? I heard it reported on the radio another way, the refineries were shutting down for extended and delayed maintenance. Horse manure!

And of course, it doesn’t answer the question of why gasoline costs more in Youngstown, and specifically on Route 224, than any other place in the state. For that, you might want to try a call to Lyden Oil.

Excuse me, can you check the battery with that fill up?