Gas Oil price correlation?

Question

back when oil was just under 70 dollars a barrel gas was at around 3 dollars a gallon. now oil is about 100 dollars a barrel and well gas is still about 3 dollars a gallon.

One would think gas prices would have a direct correlation with oil prices, but of course this (and everything related to this topic) must be complicated.

anyone have a viable reason for this? is someone eating the difference so our economy doesn't implode?
I'm a confused/concerned citizen

Answer 1

First, there are many factors in the price of gas, of which the price of oil is only one, though most would agree it is a major one. Here is one breakdown:

http://www.eia.doe.gov/bookshelf/brochures/gasolinepricesprimer/eia1_2005primerM.html

Above and beyond the nominal cost of oil is the relative benefits of producing various products from it. For example, in fall and winter, the demand for heating oil increases so it pays to make more of that and less gasoline. Gasoline becomes relatively scarcer and so its price rises.

And, of course, the refiners are well aware of the connection between price and demand and continually adjust prices so as to maximize their profit.

(The refiners claim every year that the transition to the summer formulation of gasoline from the winter causes temporary shortages which is why the prices rise every spring, only to fall back some weeks later.)

Still, I think if you look at the longer term, you will see a correlation between the price of oil and the price of gasoline.

P.S. I don't know where you live, but here gas prices have gone up about $0.30 in the past month, from just under $3.00 to about $3.25, so we are seeing a correlation.