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

Includes: OIL, UGA, USO
by: David I. Templeton, CFA

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?

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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.

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