In Recent Years Gas Prices Aren’t Reflecting Oil Prices

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There may be no part of our national economy subjected to more conspiracy theories about price fixing and collusion than gas prices. I think a lot of this has to do with the fact that fuel is one of the most visible commodity prices in the economy, and that the petroleum markets are extremely complex and not well understood by the public at large.

The truth is that gas prices really do reflect the vagaries of the oil markets. Except, not in recent years, as some gas price conspiracy theorists will point out:

As you can see, until about 2009 – 2010 gas prices reflected oil prices pretty closely. But we’ve developed a gap, now, and the question is why?

The answer is probably very complicated, but one major contributing factor has to the the Renewable Fuel Standard imposed on fuel refiners by the federal government. The RFS, created by Congress in 2007, was modified by the EPA in 2010 to increase the amount of renewable fuels refiners had to produce. By 2022 refiners must produce 36 billion gallons. For 2010, the renewable fuel standard is 12.95 billion gallon. This total volume must be renewable fuel not because of market demand but because the law mandates it.

So why are fuel prices increasingly not reflective of oil prices? Because oil prices aren’t the only factor any more. By law, renewable fuels and their price vagaries are a part of the mix as well.

Just another way in which federal mandates increase prices for consumers.

Rob Port is the editor of SayAnythingBlog.com. In 2011 he was a finalist for the Watch Dog of the Year from the Sam Adams Alliance and winner of the Americans For Prosperity Award for Online Excellence. In 2013 the Washington Post named SAB one of the nation's top state-based political blogs, and named Rob one of the state's best political reporters. He writes a weekly column for several North Dakota newspapers, and also serves as a policy fellow for the North Dakota Policy Council.

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  • WOOF

    OPEC is the elephant, the rest is peanuts.

    • http://sayanythingblog.com Rob

      OPEC existed long before 2010.

      And OPEC would be an explanation for oil prices. The question is, what is influencing fuel prices beyond oil prices.

      The answer is federal fuel mandates.

      • SigFan

        Exactly. Ethanol and all of it’s subsidies have an effect, plus the EPA mandate that by 2012 the oil industry had to blend a certain percentage of cellulosic ethanol into their fuel or be fined. The problem is no one has been able to make cellulosic ethanol (despite heavy taxpayer subsidies again) – but the government is still enforcing the fines. And all those added costs are going to be seen and felt by the consumer.

      • WOOF

        Bakken, (tight), oil is more costly to refine. “This year, the dominant factor in pushing up world oil prices — and
        thus gasoline prices in the United States — is geopolitics —
        specifically, rising tension over Iran http://usatoday30.usatoday.com/money/industries/energy/story/2012-04-21/global-factors-gasoline-prices/54421804/1

        • http://sayanythingblog.com Rob

          Again, that would explain oil prices, not the growing gap between oil prices and gas prices.

          Please, poodle, try to follow along.

          • sbark

            Do a search on how many foreign refineries have shut down, including the worlds 2nd biggest in the Caribbean.
            The USa has plenty of crude, but with decreased world refinery capacity, that burden falls to the USA, and with Obama destroying our dollars value via QE1,2,3,4—and promises to do more. Foreign buyers can buy our finished product (gasoline) alot cheaper than we can since our dollar is trash, and they are sucking our supplies our from underneath us—-thus the higher price here. We cannot compete for supply against stronger currencies.
            We have for all purposes lost the Reserve currency status without any newspaper headlines or fanfare……

          • http://sayanythingblog.com Rob

            But these aren’t new problems. Inflation has been an issue for decades, as has restrictions on refining capacity.

            And, again, the problem isn’t the price of oil specifically so much as the price of gasoline seems to be coming unhinged from the price of oil. That speaks a distortion at the refining stage of the market, and that’s exactly what the RFS is.

          • sbark

            inflation has been a problem since we left the gold standard—-but not to the extent of QE1234 in Obama’s years, same as his acceleration of Fed debt to 16.6 trillion
            Gas price unhindged……that is exactly what I said—foreign buyers can buy the refined gas out from underneath us because our dollars value is trashed by QE1234
            When money dies………in the beginning stages.

          • zdavid53

            It’s real simple. more and more regulations on transportation, storage, environmental concerns, sulfur emmissions, and on and on have led to higher costs of refining. Blame congress!! That’s gas. On diesel fuel, congress held hearings several years ago on sulfur emmissions and cornered several industry experts and asked if sulfur could be almost totally eliminated from the refined product. They said it was technically possible but estimated it would cost upwards of a dollar a gallon.
            congress then passed laws to incrementially lower sulfur emmissions and content in diesel fuel. It’s congresses fault. The latest estimate is 80 cents to one dollar, depending on the crude oil.

          • zdavid53

            By the way, now farmers have to add more sulfur to the soil.

          • zdavid53

            More and more regulations in transorortation, storage, refining, wierd distribution because of different standards (especially in California), and on and on. That explains gas. Diesel has historically been less per gallon than gas. Several years ago congress cornered several industry experts and speculated if and how much it would cost to remove almost all sulfur from finished diesel fuel. The experts speculated it could be done but would cost upwards of a dollar a gallon. Congress then passed laws to incrementally restrict content of sulfur in diesel where present diesel has almost no sulfur. That was at a time when acid rain from sulfur was deemed a big problem. 97% of acid rain at that time was caused naturally. Bogs burning in the northwest territories, forest fires, volcanoes, etc. Regulators are now happy even though only a very slight difference is seen. Refiners estimate sulfur removal at 80 cents to one dollar depending on the crude oil used.

        • camsaure

          Wrong, Bakken oil is easier to refine according to the oil people I have talked to. I will grant you though that fracking is more expensive then conventional drilling, but they are getting better at that too.

      • http://ndgoon.blogspot.com Goon

        I think that Obama has been on record wanting gas to be very expensive as well and wanting it to be painful to fill your car so you will drive a shoe box instead of an SUV.

  • Harold

    New regulations by this administration would be my guess on higher price for gas and lower price per barrel of oil, and the question would be why this big a difference? Regulations on how gas is made and what goes into it cost money. Just saw a TV ad that said Verizon would like to put microphones and camera’s inside your TV cable box so they could hear and observe you in your daily activities. They said they want to listen in on people so they can advertise products to them over the phone which they might have been talking about or would have some use for. They say its all about more advertising of products to the people. Wonder how long that plan will be in place before the govt is the one who is watching you and listening in on your conversations in the privacy of your house and homes? At any rate govt enforced changes to many products makes their costs to the consumer raise like we see with fuel for our cars. Would imagine Verizon’s cost per month will go up to the users of their products if they in fact do follow through with observation devices in your home cable TV box.

  • sbark

    Its a function that we have effectivly lost the advantage of the Reserve Currency status that for decades kept our home energy well under world prices.
    Thanks totally to Obama and his kool aid followers
    …….wait until it happens to food commodity prices.

  • cylde

    The headline in the tribune is an indicator that costs will get higher if oil is shipped by crony capitalist warren buffet’s railroad because rail is much more expensive and dangerous than pipelines. That is a matter of record not just my opinion.

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