Why Gasoline Prices Do Not Always Drop Along with Those for Crude Petroleum

Financial

Crude petroleum comes out of the ground as dense, viscous, sticky stuff, closer in appearance to hot, wet tar than to the refined fuels that so many are used to. What that mixture possesses in abundance is a great deal of locked-up energy, but making use of its potential takes some work. Column-based distillation systems and other kinds of refineries break raw petroleum down into increasingly rarefied products, from thick, cheap bunker oil to purer, more delicate fuels like diesel and gasoline.

Where some drivers look at plummeting petroleum prices and wonder why the amounts they pay at the pump might not be doing the same, this process stands as one important reason for the disconnect. As this website makes clear, there are a number of ways by which gas prices can be forced out of sync with movements on the global petroleum markets.

Understandably enough, refineries that handle petroleum thousands of barrels at a time do not buy their supplies on a daily basis. Instead, they tend to stock up on working inventories of petroleum when prices seem attractive, taking delivery of amounts that might last them for many months. Even when a refinery buys petroleum at a lower price than was the norm beforehand, it might still face a continued decline in these figures. As a result, a refinery will occasionally and for quite some time be processing petroleum that was bought at a significantly higher price than currently prevails on the commodity markets.

This, in fact, is the primary reason why drivers do not always benefit right away from dropping petroleum prices. On the other hand, there are also other factors that go into determining the price of gas or diesel at the pump, and each of these can contribute to this kind of disconnection, as well.

Should the price of gas drop significantly over a fairly short period of time, for example, refineries will sometimes opt to stockpile their current output rather than selling immediately at unprofitable terms. As issues like these and others interfere with what could otherwise seem like a necessarily clear relationship between the price of crude petroleum and that of refined gas, drivers will sometimes be forced to pay more than they might otherwise hope.

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