What does the price of oil mean for a gallon of gas?

Posted at 2:43 PM on March 8, 2011 by Bob Collins (9 Comments)
Filed under: Energy

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
Today	$105	$3.55
2/2011	$90.64	$3.35
1/2011	$87.39	$3.09
12/2010	$82.01	$3.04
10/2010	$72.59	$2.89
9/2009	$68.87	$2.50
4/2009	$47.51	$2.08
11/2008	$52.26	$2.23
10/2008	$91.70	$3.25
8/2008	$119.05	$3.96
7/2008	$133.60	$4.21
4/2008	$95.56	$3.50
1/2008	$88.41	$3.14
10/2007	$73.65	$2.78
3/2007	$55.18	$2.52
9/2006	$63.18	$2.64
2/2005	$37.92	$1.87
4/2004	$29.82	$1.77

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.

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Comments (9)

I believe (from when I was manager of gas station many years ago) that a barrel of oil purchased today doesn't hit my car for 2-4 months.

I think if you shift your chart 12 weeks on on side it might line up better.

Posted by BJ | March 8, 2011 3:12 PM

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That's true, but the price does because the service station is calculating the cost of replacing the gasoline that's going in your car today. The price you pay at the pump today isn't the price it cost to make it, it's the price it costs to replace it.

Check that AP story, it delves into that.

Posted by Bob Collins | March 8, 2011 3:20 PM

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I'm slowing down and finding it's easier on the mind as well as the wallet to maintain a steady 55mph and getting 34mpg. All it takes to get home at the same time as before is leaving a few minutes earlier.

Posted by David W. | March 8, 2011 4:07 PM

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Is there anything better than be passed by someone racing to get to the next stoplight, and then pulling up next to them a few seconds later and being able to look over and smile?

I think not.

Posted by Bob Collins | March 8, 2011 4:13 PM

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Just remember to stay out of the left lane, ok?

;)

Posted by Heather | March 8, 2011 4:23 PM

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Agreed Bob!

Since my decision to obey the posted speed limits I've also found that I never experience road rage any longer. I simply move to the right lane, relax, set the cruise and observe the behavior of my fellow commuters. It's really quite fascinating.

Posted by andy | March 8, 2011 4:28 PM

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Once winter ends (it will, right?), then the motorcycle comes out. Then I can schedule appointments with my dentist to have my dental work put back in its proper place due to potholes. ;-)

Posted by John O. | March 9, 2011 6:37 AM

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If you stick to the posted speed limits in Alabama, someone will rum up your rear end! Here, it's 'go with the flow' or STOP...

Posted by 60srocker | August 5, 2011 12:35 PM

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When we had "odd/even license plates, people adjusted their driving habits. I worked pt for a large Shell station in my town. The owner said, "he was pumping 20,000 gallons less per month then before odd.even. At first folks came in and topped off their tanks. But then without lines they came in less frequently. Hah! The plan worked so well the tankers had nowhere to drop because the onshore storage tanks were full. Too bad they anchored offshore to await space to unload.

Lets try that again Mr. President. I'd like to see the gas prices slide back to $3.00 a gallon or less.

Posted by Richie Conrad | March 31, 2012 6:32 PM

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