In Recent Years Gas Prices Aren’t Reflecting Oil Prices
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.
Tags: Gas Prices, oil, renewable fuels standard
