When Oil Prices Go Down, Why Don’t Gas Prices Follow?

Coeur d'Alene, Idaho, USA - Mar 26, 2019: A Walmart gas station.
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One of the biggest factors influencing gas prices is the cost of crude oil. According to the Energy Information Administration (EIA), the cost of the raw material accounted for 59% of the price of a gallon of regular gasoline in May. However, it isn’t the only thing driving gas and diesel prices.

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The cost of gas is influenced by Middle Eastern politics, refinery capacity, government policy and war, reports Bloomberg. After war broke out in Ukraine in February, the U.S. announced plans to embargo Russian energy exports. The price of crude oil climbed to over $100 per barrel. This also happened at a time when global oil production was still recovering from disruptions during the pandemic. 

Bloomberg noted that some major producers struggled to increase supply, which made it difficult to replace Russian oil. Russia is the world’s second-largest producer of oil, reports The New York Times, and accounts for about one in 10 barrels on the global market. Officials from Saudi Arabia and the U.S. also blamed rising prices on a lack of refining infrastructure. This causes prices to rise faster than crude oil.

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To help ease this crisis, the Biden administration asked U.S. oil companies and other producers to increase output, but refinery shutdowns caused by the pandemic are not so easy to rectify. Bloomberg reported that the U.S. lost more than 1 million barrels a day of capacity between 2019 and 2022. Large investments necessary to keep these facilities online have become more difficult to secure.

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If supply can’t be increased, then higher prices might curb demand, says Bloomberg, which could cause prices to ultimately fall.

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About the Author

Josephine Nesbit is a freelance writer specializing in real estate and personal finance. She grew up in New England but is now based out of Ohio where she attended The Ohio State University and lives with her two toddlers and fiancé. Her work has appeared in print and online publications such as Fox Business and Scotsman Guide.

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