Why Gas Prices Sometimes Mystify Drivers

With gas prices in many parts of the country less than half of what they were only five years back, drivers are becoming accustomed to far more affordable trips to the local station. That is good news for a great many people, as high gas prices have a way of dragging down economic activity in general, since sacrifices must inevitably be made to accommodate these increased costs.

With Saudi Arabia and the OPEC members it leads now seeming determined to push today’s petroleum prices to higher levels, on the other hand, some drivers are wondering how long the good times can last. Even if some experts feel that the OPEC initiative is unlikely to be successful, plenty of uncertainty remains. In fact, some significant questions about how gas prices are even linked to petroleum costs in general persist in the minds of many. As my review here of the situation concludes, things often end up being more complicated than they seem.

There are, in fact, a number of factors that go into determining the prices that drivers pay for gasoline at the pump. Gas, of course, is a refined distillate of petroleum, with various impurities and unwanted materials being removed to yield a fuel that burns relatively cleanly and contains a great deal of energy. As might therefore be expected, the price of crude petroleum does, in fact, impact the cost of the gasoline that emerges from refineries, but the relationship is not always as direct and clear cut as it might seem.

One significant issue, for example, is that most refineries stockpile large supplies of raw petroleum to process over weeks and months to come. When prices are low, refineries tend to build up these inventories, cutting back on their buying activity as petroleum quotes climb higher. While it could be possible for a particular refinery to adopt a more reactive approach, that would not make much business sense, in the end. Instead, a certain amount of lag and disconnection is built into the system in the form of the inventories that these large refineries maintain. Because of this and other factors, drivers will not always experience either immediate relief or frustration when petroleum prices drop or climb.