The AP on Oil and Gas Prices

The Associated Press takes a question on oil and gas prices, and does a pretty good job explaining the factors affecting prices:

Ask AP: Your News Questions, Answered

Q: Background (my numbers maybe a little off, but you will see my point): About five years ago, oil sold for around $20 per barrel and gasoline was around $2 a gallon. Now oil is about $100 per barrel and gasoline is $3.25ish per gallon. Over the past five years, no new significant oil wells have come into production and no new refineries have come on line. So…

How can oil go up in cost by a factor of five and the cost of gasoline go up by a factor of two? We can only get so much gasoline out of a barrel of oil and our refining efficiency has not improved significantly. The math just does not make sense.

Richard Driscoll

Winnsboro, S.C.


A: Oil and gasoline prices often move in the same direction, but aren’t tied at the hip.

Oil prices fluctuate with production decisions from the Organization of Petroleum Exporting Countries, or when conflict in the Middle East or Nigeria threatens supplies. Increases or decreases in crude inventories, which come from imports and domestic production, also affect crude prices.

Gasoline prices are more closely tied to demand from U.S. drivers and how well refineries are doing producing gasoline. Falling production and inventories often send prices skyrocketing.

Lately, though oil prices have been at records, gas prices haven’t kept pace, and refiners’ margins have been squeezed. Refiners are making a far smaller profit now than they were in the spring, when gas prices were at records and oil was in the mid-$60s.

The refiners are limited by market forces in their ability to raise prices to try to maintain big profits. So when crude prices go way up, that doesn’t necessarily mean they can raise the prices they charge.

And to clear up those numbers a bit: About 5 years ago — in 2002 and 2003 — gas prices averaged $1.345 and $1.561 a gallon, respectively. Oil averaged $26.15 a barrel in 2002 and $30.99 in 2003.

Gasoline is now at $3.061 a gallon — up 128 percent from 2002 — and the recent record oil price of $100.09 was up 283 percent from the 2002 figure.

John Wilen

AP Energy and Transportation Writer

Now if the public and our elected leaders possessed the same understanding, we might start to get somewhere with our energy policy. As it stands, it seems that most people think prices are moved by the whims of Big Oil. There are entire organizations built around the theme that high gas prices are a result of oil companies increasing their profit margins. As I have stated previously, this has cause and effect reversed. With such a poor understanding of the industry, it is no wonder that we are subjected to nonsensical political rhetoric coming from the presidential candidates*.

* Mike Huckabee says “…we will achieve energy independence by the end of my second term. The Huckabee Administration will be remembered as the time when we finally, finally achieved energy independence.” To that I say that he is either completely deluded, ignorant about how much energy the U.S. actually uses, or is simply telling people what they want to hear. Then again, which president since Nixon didn’t make this promise? And have we grown more or less dependent during each successive administration?

6 thoughts on “The AP on Oil and Gas Prices”

  1. You said a mouthful here, especially your observation on Huckabee’s delusions. The energy debate is based on the assumption that we’ll be using as much, or more, energy in the future as we use now, and that refusal to accept a new reality is going to make the situation far worse than it has to be.

  2. your comments/questions about the public not getting IT–

    can’t/don’t read.

    memory/thought time span in sound bite mode.

    no time/desire devoted to thought–see the PAP on the screen being consummed.

    curiosity beyond immediate self gratificatin/delusion lacking.

    with a populace like this, POLS[if they are any different than the plain folk] don’t need intellect/honesty to keep themselves employed’



  3. Just one more little thing that the AP forgot to capture in their analysis on the rising cost in oil versus the rising cost in gas, you have to back out the Federal Tax on gasoline before you calculate the percentage increase once you do that, it’s closer to a 200% price increase. I’ll agree the majority of the remaining price rise discrepancy is mostly in refining margin since 2002.

  4. “…we will achieve energy independence by the end of my second term. The Huckabee Administration will be remembered as the time when we finally, finally achieved energy independence.”

    Maybe Huckabee is right, if we all went back to living like we did in the 1880s, (or as the Amish do today) we’d be energy independent.

    “Hitch up the mules Mable, I’m off to plow the north 40 before supper.”

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