Why Crude Petroleum and Gasoline Prices Do Not Always Seem to Line Up

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Many Americans today truly appreciate the spacious, comfortable service and safety of transportation that a good sport utility vehicle can deliver. While manufacturers have made some impressive strides, the simple size and bulk of an SUV will generally mean that it requires more fuel than a smaller vehicle would. Even for those who consider themselves willing to pay this price, it can be painful to head to a local gas station when the cost of a gallon of fuel has risen significantly. In some cases, this frustration can be compounded by the fact that gasoline prices do not always move as fluidly as the petroleum quotes that might be assumed to determine them. While fuel-hungry SUV owners might not always take solace in such explanations, the reality is simply that the situation is a little more complicated.

As a general, historically useful rule of thumb, a one-dollar change in the price of a barrel of crude petroleum is thought to influence a corresponding move in gas prices by about two and a half cents per gallon. This relationship has actually held up fairly well for decades, at least when short term developments are cast aside in favor of letting things settle out over longer time periods.

The reason for this is simply that fluctuations over the short term can easily overwhelm whatever validity this commonly recognized rule might have. Even as recently as six years ago, for instance, as analysis and prices listed here make clear, that supposedly solid relationship seemed to many to have broken down entirely.

In fact, nothing of the sort had happened. As the author of that post makes clear, what had occurred instead was simply that a number of pointed, relatively important one-off events had obscured the subtler, gentler effect that the price of petroleum tends to have on that of gasoline. Over time, as traders became more accustomed to those formerly unexpected developments, things started to make more of a traditionally familiar sort of sense. While the owners of SUVs that require a good deal of fuel to keep them running might not always find such expectations comforting, the truth is that petroleum prices tend, eventually, to be reflected in the cost of gas.