Oil Price vs. Gas Price: Is $1 a Gallon Realistic?

On Friday, WTI spot crude closed at $40.81 per barrel. By simply looking at pump prices, it is evident that gasoline prices of fallen dramatically along with crude. So how much lower could pump prices decline based on the per barrel price of crude?

click to enlarge

Source: Energy Information Administration

The above chart graphs oil prices along with gasoline prices. In January 2002, the per barrel price of crude was around $20 per barrel. At the same time, the average price of a gallon of gasoline was around $1.15 per gallon. Given the high correlation of pump prices to oil prices, it seems possible that near $1.00 per gallon of gasoline is a possibility. This decline in gasoline prices is equivalent to over $300 billion in tax cuts.

Comments

[bowman711:]

If $147/barrel was a bubble, why isn't $40/barrel a few months later an 'unbubble?' Never in the history of oil has there been such a steep decline so fast. This decline is especially suspicious to me because people still need to heat their homes, drive to work, and most factories are still producing some level of their goods. Even if unemployment is 10%, that means than 90% are still driving to work. Does anyone believe that anywhere near 2/3 of people heating with oil or oil related products have stopped heating their homes?

Even more important, $40 oil is making it uneconomic for oil companies to explore for and develop new oil sources.

Again, there is something very suspicious about such a drop in the price of oil, and I suspect it is just like the gold/silver price, being manipulated by the Fed/Government to make the economy and/or the dollar look better than it is. Or, it is being done to try to stave off a full depression.

2008 Dec 07 11:41 AM

[Jimbo:]

Bowman711's comment is interesting. I can understand the manipulation of gold because it is a relatively small entity and governments have, at least in the past, held a significant amount of gold to sell into the market. Oil and gas are a different matter. Economists are fond of the term: "margin" as in the term: everything happens on the margin. A relatively small move in demand may get multiplied in a large price movement, up or down. I wonder if this is what's happening now. I seem to see a significant drop in motor traffic in my area at certain times of the day or week.

2008 Dec 07 12:25 PM

[NOWHEREMAN:]

3 reasons why Gas won't get to $1.00:
Federal Taxes, State and Local Taxes, Ethanol prices

Some place along the line some Gas station somewhere in the US will do an advertising promo for $1.00 but other than that No. IMHO

2008 Dec 07 01:00 PM

[notsosmart:]

its not so much as supply & demand as it is manipulation.all around me predicted $200 brl oil as it was @ 145-150$.they were wrong but could have been right as the phony AAA paper was starting to surface all over & the liars real estate market unraveled & changed the equation.the world today indicates that nobod y knows & all is manipulation.people in my area now want to get out of their heating contracts cause oil is down.renegotiate a contract?LOL

2008 Dec 07 01:02 PM

[Joyeb:]

Low gas pump prices will ENERGIZE US economy and will to a good extent clean up US recession sooner than thought of...........Joyeb

2008 Dec 07 01:05 PM

[nakedjaybird:]

And why is the price of diesel more than $1 more than gasoline????

2008 Dec 07 01:39 PM

[David I. Te...:]

The average tax per gallon of gasoline:
Federal = 18.4 cents
State = 21.59 cents

www.eia.doe.gov/pub/oi...


On Dec 07 01:00 PM paultaut wrote:

> 3 reasons why Gas won't get to $1.00:
> Federal Taxes, State and Local Taxes, Ethanol prices
>
> Some place along the line some Gas station somewhere in the US will
> do an advertising promo for $1.00 but other than that No. IMHO

2008 Dec 07 02:08 PM

[David I. Te...:]

Historically, the average price of diesel fuel has been lower than the average price of gasoline. However, this is not always the case. In some winters where the demand for distillate heating oil is high, the price of diesel fuel has risen above the gasoline price. Since September 2004, the price of diesel fuel has been generally higher than the price of regular gasoline all year round for several reasons. Worldwide demand for diesel fuel and other distillate fuel oils has been increasing steadily, with strong demand in China, Europe, and the United States, putting more pressure on the tight global refining capacity. In the United States, the transition to ultra-low-sulfur diesel fuel has affected diesel fuel production and distribution costs. Also, the Federal excise tax on diesel fuel is 6 cents higher per gallon (24.4 cents per gallon) than the tax on gasoline.

www.eia.doe.gov/booksh.../


On Dec 07 01:39 PM nakedjaybird wrote:

> And why is the price of diesel more than $1 more than gasoline????

>

2008 Dec 07 02:13 PM

[NOWHEREMAN:]

Thanks Disciplined. On average thats .40 cents in taxes. The Ethanol subsidy is .50 per gallon of ethanol, this is also a tax paid by us. Assuming 15% ethanol, thats another $0.075. Given refining costs, blending and delivery costs, Gas station payrolls( which I do not have a clue as to what they would be on average across the country), I cannot see all of that below $ .53 per gallon.

IMHO

2008 Dec 07 02:44 PM

[secmaven:]

The lately not lamented $145 per barrel crude price was a manipulated number created by the foolish avarice of the hedge fundies. It is reasonable to assume that the present $40 per barrel price is a manipulation of a short selling division of the the NY fed as part of the coordinated attack Ben and Al are using to restore the economy.

2008 Dec 07 09:57 PM

[William Ver...:]

Paultaut, me thinks you hit the spike on the head. At this rate, it now costs to add ethanol to gasoline. But than really, was ethanol ever a cheap filler to reduce the consumption of fossil based fuels?

2008 Dec 08 04:46 PM

[dzagama:]

What are you people talking about? The drop is caused by the increased power of the dollar, not in speculation. The price of oil in gold has not changed:

www.ridelust.com/wp-co...

Right?

2008 Dec 15 07:13 AM

[User 338562:]

The one thing that burns me is your gas stations regulating the prices. Even though the price of the barrel may go up, all gas stations jump their prices when it goes up at the barrel. They purchase gas when they need to fill their tanks. They buy it at one price, but when the barrel goes up so does their price. Even though the tanks are still full, they raise the price anyway. Not only is fuel governed by our government, it is also governed by gas stations. Who's ripping us off.

Jan 16 09:06 AM

[pissed off:]

we are all getting screwed no matter how we look at it "pass the ky please"

Jan 29 12:14 PM

[PHIL ANGELO:]

WHAT CONFOUNDS ME IS, WHY, WHEN OIL WAS AT $60 A BARREL, THE PUMP PRICE FOR GAS WAS $1.60 A GAL. NOW THAT OIL IS TRADING AT $40 A BARREL, THE PUMP PRICE IS NOW $1.89 PER GALLON. WHAT IS WRONG WITH THIS SCENARIO. THE SITUATION AS I SEE IT, IS THE SERVICE STATION OWNERS CONSORTIUM HAS GOTTEN TOGETHER AND HAVE AGREED TO ESCALATE THE PUMP PRICE KNOWING THAT THE AVERAGE AMERICAN IS SO HAPPY THAT THE PRICE IS BELOW $2 A GAL AND WON'T GRIPE AS LONG AG IT STAYS THERE. THEY ARE USING THIS SITUATION TO GROSSLY PAD THEIR PROFITS AS LONG AS THERE IS NOT AN UPROAR. THE PRICE AT THE PUMPS, BASED ON THE COST OF A BARREL OF OIL AT PRESENT, THE STATE AND FEDERAL TAXES , THE COST OF REFINING THE OIL AND TRANSPORT COST, SHOULD BE IN THE $1.49 RANGE PER GALLON. SO, AS LONG AS WE CONTINUE TO ACCEPT THIS ABUSE, WE WILL BE, AS THEY SAY, RAPED AT THE PUMP BY THESE GREEDY OIL COMPANIES WHO ARE CONTROLLING THE GAS PRICES. PLEASE GO BACK AND CHECK,AS I DID, WHAT GASOLINE WAS SELLING FOR A FEW WEEKS AGO WHEN OIL WAS GOING FOR $60 A BARREL WHICH WAS $1.60 A GAL,AND NOW THAT OIL IS AT $40 A BARREL, PUMP PRICES HAVE GONE UP TO $1.89 A GAL. THIS IS A TRAVESTY PERPETUATED ON THE AMERICAN PUBLIC AND NO ONE SEEMS TO CARE. PLEASE WISEN UP AND CONTACT YOUR CONGRESSMAN, YOUR U.S. SENATOR AND YOUR STATE LEGISLATORS. IT'S TIME TO STAND UP FOR YOURSELF AND STOP BEING TAKEN ADVANTAGE OF BY THESE GREEDY OIL CONGLOMERATES AND THESE SERVICE STATION OWNERS.

Feb 08 04:07 PM

[JonathanLV:]

The reason gas prices fluctuate in such "stupid" ways is because gas stations don't make squat on gas. They make an AVERAGE of 3.5 centa a gallon, NO MATTER WHAT THE PRICE IS! My dad used to argue how the same gas a station got a day ago is now selling at, say, $1.60 instead of $1.50 like it did earlier that day. This is why, and I have talked with more then one person who has ever worked for or owned a gas station.
This is why a lot of gas stations started charging for credit card usage again. When the bill of sale is 3 or 4 times higher and you're still only making the same profit, but the credit card share goes up because of a percentage.
What makes me sick is those pulling out their H2 Hummers and Cadillac Escalades again. This is why we'll never learn our lesson. And don't get me wrong. I am not getting on people who own trucks, especially if they truly need them. Hell, I love trucks too. It's these people who have to make up for a lack of what's important inside them by owning these nothing-but-status-sym... gas guzzlers that make me want to puke.

Feb 10 01:05 PM