Monday, February 16, 2009

Why U.S. Gas Prices Haven't Fallen More

Interesting story about how U.S. gasoline prices haven't fallen nearly as much as the officially quoted oil price. "Price gouging" (and thus deflation fighting! If that would have been true, then they would have been heroes from a Keynesian perspective) gas retailers at work?

No, the reason for this is that the official quoted price is for West Texas Intermediate crude (WTI), a high quality sort drilled exactly where the name suggests it is drilled. But most gasoline is made of imported lower quality varieties. And because demand has fallen more in America than elsewhere, the WTI has fallen a lot more than other oil. Usually, the imported stuff has been cheaper which is why refineries have focused on them, but now unusually enough, the WTI is actually cheaper.

Refineries could of course invest so that they will be able to use WTI, but that will take years, and given how volatile oil prices have been, they can't be sure that WTI will really stay cheaper. And indeed, if these investments were made, that in itself would push up the price of WTI relative to other oil. So for now, gasoline in America won't be as cheap as you would expect from the price of oil usually quoted in the financial media.


Blogger SAJ said...

WTI-oljan ska levereras till Cushing, Oklahoma. Där är lagernivåerna skyhöga för tillfället och har så varit en tid, därav det låga priset. Många inom branschen har påtalat det orimliga i att leverans sker till ett ställe utan hamn.

4:32 PM  

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