The price of gas

June 26, 2006 10:52 AM

How does the price of crude relate to the price of gasoline?

In the late 90s, I remember oil falling to around $10/bbl. At that time gas in my area was about $1, or 10% of the price of a barrel of crude. Now oil is hovering around $70/bbl, and gas is about $3, or 4% of a barrel of crude. Why is this so? Is there a formula that can model the past relationship between crude and gas prices? How much will gas cost when oil rises to $100, $200, $300/bbl?

posted by Crotalus to travel & transportation (5 comments total)

If oil was free, it would still cost money to transport it and refine it to make gasoline. The cheaper oil is, the greater part of the cost of gasoline is things other than oil.

In the short term, things like refining capacity and EPA reformulation regulations will alter the price of gasoline in oil terms.

In the long run, as the price of oil increases, the beta will approach 1, and I wouldn't be surprised to see that 4% number stick.

There are additional factors, however, that change refining margins-- of note is CERA's opinion that Saudi oil will grow heavier and more sour, and hence, more expensive to refine.
posted by Kwantsar at 11:03 AM on June 26, 2006

Here is a primer on gas prices in the US-- as Kwantsar mentions, much of the cost of turning oil into gasoline and getting it into your car isn't directly tied to the price of oil. Also, taxes make up a significant percentage of the cost.
posted by justkevin at 11:09 AM on June 26, 2006

This page says a dollar increase in crude barrels tends to cause an average 2.5 cent increase per gallon in gas.

Also, keep in mind that most of the taxes involved in gasoline are fixed, not percentage. In California, it's $0.36 per gallon, plus sales tax. When gas is $1/gallon, the taxes are 44% of the price. When gas is $3/gallon, the taxes are 20%. This make sit harder to come up with a direct correlation between the prices.
posted by smackfu at 11:21 AM on June 26, 2006

The relationship between the price at the pump and the crude oil price depends partly on the costs of refining / transporting etc as mentioned above, but also on the taxes and subsidies that different countries apply. Most countries will attempt to 'smooth' out the changes where they can to keep their economies stable and minimise the price hikes and decreases in the cost of crude oil.

The US has very cheap gasoline prices compared to most other western nations, which is due to lower taxes. Indonesia is facing budget deficits as they continue to subsidise fuel since prices have risen. India is facing political unrest as they reduce subsidies to protect their economy.

So how much will gasoline cost in the future? Depends on future projections of available oil reserves, the political climate (instability in the Middle East, Russian decisions as to who to supply etc), availability of alternatives, the economic ability of the country you live in to provide subsidies, the political will of the country you live in in relation to both taxes and subsidies, any international agreements on climate change that your country subscribes to, etc etc. So difficult to tell - sorry!
posted by bella.bellona at 12:19 PM on June 26, 2006

Here is a more detailed breakdown of the factors in California (via google, yeah). They say the cost of crude oil made up $1.60 per gallon or so of the cost of gasoline in the last month.

So if your benchmark price is now at $70/bbl and it moves more or less in proportion to whatever price they're using, that means the price of gasoline goes up by about $0.23 for each $10 rise in crude oil. At $100 oil, gas would cost only $3.89 per gallon compared to $3.20 recently, if everything else stays equal, which of course it won't (reported "refinery cost and profits" has ranged from $1.15 to $0.30 in the past few months.) At $200 oil, gasoline might be about twice the current price in California, with 75% of it going for the crude.
posted by sfenders at 3:22 PM on June 26, 2006