Tuesday, October 16, 2007

Why isn't gasoline higher?

It looks like crude oil prices and gasoline prices are out of sync. (I'm not sure why.)

Light, sweet crude for November delivery rose $1.48 to settle at a record $87.61 a barrel. Earlier, prices rose as high as $88.20, a trading record. Also Tuesday, November gasoline rose 1.62 cents to settle at $2.1737 a gallon. Overall, retail gas prices have not kept pace with oil's recent rally.

A barrel of crude is 42 gallons. At $88 a barrel that means crude is now $2.09 per gallon. If gasoline is trading at $2.17, that only leaves 8 cents to cover the refining margin. The average refining margin over the last 6-7 years has been about 30 cents.

This leads me to expect that the price is headed up, sooner rather than later, by 20 cents or more.

(Note that the futures market price of gasoline doesn't include taxes, distribution or marketing. These add another $0.65 per gallon to the average cost in the US.)

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