An Associated Press story yesterday said there’s more to the price of a gallon of gasoline than just the price of oil. That’s certainly true. There are a lot of factors that go into the price, it said:
Oil prices can be moved by geopolitics, the value of the dollar or Chinese demand. Gas prices can be moved by oil prices, refinery problems or even weather that might keep drivers at home. For example, gas prices are expected to rise in the next few weeks as refiners switch from cheaper winter blends to more expensive summer ones because the warm air makes gas evaporate faster.
Still, I wondered whether it’s possible to put an expected price at the pump to the price of a barrel of oil. For example, when you hear this afternoon — as you will when you drive home with Minnesota Public Radio’s Marketplace, right? — that oil closed at about $105, is it possible to predict what that means for a gallon of gasoline?
Here’s a historical table of the price of a barrel of oil, and a price of a gallon of gasoline in the Upper Midwest at the same time:
|Date||Price of a barrel of oil||Retail price of gasoline|
Historically, $105 a barrel appears to yield a gasoline price of about $3.55 or so a gallon. $107 (I’m using averages here) yields about $3.73 a gallon. And, indeed, today’s average price for gas in the Twin Cities is about $3.60. To get back to $3 a gallon gasoline would require oil to drop to $85, based on this historical “relationship.”
But it’s hard to know whether $4 a gallon gasoline will require $120 oil. We’ve only been there once before.
Today, however, the Department of Energy said there’s a 25 percent chance of $4 a gallon gasoline this summer.
The old saying is “the cure for high gasoline prices is high gasoline prices.” People drive slower and use it more efficiently, increasing the supply and eventually dropping the price. At what price does that happen? Judging from the cars whizzing by me as I plodded along at 55 today, much higher than it is now.