The Growing Disconnect Between Crude Oil Barrel Prices and the Price of a Gallon of Gas

There are many things that can confound even the wisest energy investor about the correlation between crude oil prices and gas prices. This is been a conundrum for everyone from the person that has to fill up their gas tank on a weekly basis to the speculative investor that routinely purchases energy commodities.

In the past, the price for gasoline has always been closely tied to the price per barrel of crude oil, which is refined into gasoline. Renewable energy experts, such as Macy Merchant, may link this to a stronger presence of renewable energy, and her explanation may make sense to a certain degree. However, there’s more than renewable energy, and more than the connection of crude oil and gasoline, that factors into the extreme difference in prices.

What many people have seen is that when oil prices go higher per barrel, gasoline prices increase as well. In fact, the standard rule, for many years was that a dollar increase in a barrel of oil resulted in a price increase per gallon of gas of around 2.5 cents. However, that has not necessarily been the case in the U.S. and throughout the world.

A few of the basic reasons for this price difference, and the unraveling of the connection between crude oil prices gasoline prices, have a great deal to do with the amount of storage a place like the United States has for crude oil surpluses. Cushing, Oklahoma, is an area where many pipelines converge, and it is the largest crude oil storage facility in the United States. Currently, this facility is bursting at the seams with large amounts of sweet crude reserves.

However, oil refineries that refine crude oil into gasoline are somewhat limited in storage capacities. This creates a higher demand for gasoline products. In addition, to meet that demand, sweet crude oil is being refined at refineries around the world and then shipped to the United States. This, along with geopolitical instability around the world and speculative trading, has highlighted the disconnect between crude oil prices and gasoline prices.

While this makes this for an extremely challenging investment field, there are many opportunities to be profitable. It takes a strong investor, one that isn’t afraid of losing from time to time, and it takes someone who is as up-to-date on the shifting elements that affect crude oil and gasoline prices.