Tuesday, August 16, 2011

Gas prices now falling as oil rises

On Sunday, I observed:
[R]etail regular gasoline should be no more than $3.25 a gallon when WTI is $85 a barrel. Let's see if gas prices get there, including in Grand Rapids, where they shouldn't be so high right now.
It looks like the prices of gasoline and crude oil are equilibrating, both nationally and locally. From Reuters yesterday.

U.S. gasoline prices drop for second week in a row
Oil prices, which account for about 65 percent of the cost of making gasoline, traded up $2.50 on the New York Mercantile Exchange to settle at $87.88 a barrel on Monday.
According to the handy graph of the relationship between crude prices and retail regular gas prices that Stuart Staniford at Early Warning has provided, a price of about $88/barrel for oil should translate into a $3.40/gallon at the pump for unleaded regular.

So what are gas prices doing?
U.S. retail gasoline prices fell 7 cents over the last week to $3.60 a gallon as of Monday, the second consecutive drop this month, the U.S. Energy Department said.
Still a bit high, but they're falling as oil prices rise. I wouldn't be surprised if oil rises to the low 90s and gas falls to just below $3.50. I could live with that, and so could the U.S. economy.

As for what's happening locally, ask the Detroit Free Press.

Gas prices down 5 cents in state
AAA Michigan said gasoline prices are down 5 cents per gallon over the last week, to a statewide average of $3.69.

The auto club said Monday that the average is about 92 cents per gallon higher than last year at this time.
Still high, but that was last week. Sunday, the price at the corner station was $3.65. When I filled up last night (Monday evening), it had dropped to $3.59/gallon. Good thing I waited. If these lower prices hold up, then AAA Michigan will have another price drop to report next week.

News isn't quite as good if one drives a diesel vehicle. From the Reuters article.
Diesel prices fell 6.2 cents week-on-week to $3.84 a gallon, though that was still up 85.6 cents from a year ago, the department said.
Diesel demand is much less price-elastic than gasoline demand, so expect it to remain more expensive than gasoline. Also, higher prices of diesel are more likely to be passed on to consumer goods as part of the cost of transportation. As for what diesel should cost at the pump for a given oil price, I may have to ask Stuart Staniford that one. He does respond to his commenters.


  1. I have to wonder why in this country diesel has been higher than standard gasoline for several years now. Used to be cheaper, and still is in many (most?) parts of the world. Also much more popular, as it tends to burn more cleanly.

  2. When the price per barrel goes down, the exporters slow down the taps, and viola (it burns) the price goes back up. Like magic!

    100 more years of this until supplies run out overseas, and then the exporters can go back to having countries made of sand and/or jungle, just like during the Roman era.

    Of course, it's not like there's a giant worldwide conspiracy of petroleum producing countries who in are cahoots with multi-national oil companies or anything. That would be nuts to even consider!

    The Templars told me so.

  3. @John Henry That deserves to be the subject of its own post.

    @Narb The Templars told you so? A mere comment cannot yield the response that your remark deserves. Fortunately, I have just the item to post in an entry for you.