How does crude oil price affect the gas price at the pump?

Question

When we see this price go down, how soon until we can expect to see the price at the pump go down?  Also, these price reports usually include "for (month) delivery".  Does that mean delivery to consumers, or delivery to the refineries?  How does this delivery month affect prices at the pump?

I understand that outside influences can change the price at the pump (refinery capacity, strikes, tax changes, etc).  But, if we strip these variables away, how much does the price of crude oil (per barrel) affect the price at the pump?

Anonymous · Accepted Answer

Delivery is to the buyer of the barrel of crude which means a refiner.  It takes about a month to refine the oil that is delivered and the stations don't usually drop prices as fast as they raise them.  So assuming that you are looking at July delivery, the refiners will be all set in August and that refined gasoline will be delivered to stations late August in the best case scenario.  

The price at the pump is reflected in marginal prices.  Since the U.S. consumes more oil than is produced here the real prices are set at the margin (what we buy on the open market).  In order to keep the markets stable and liquid the entire stock is priced at the market.  The calculations take a little bit but a barrel of oil is 42 gallons and that is refined into various products 19.2 gallons of which is generally gasoline .  That should help you see the beginning of the pricing.  I have done the full math with estimations on actual profit recieved by everyone.  It's a bit long but if you are interested contact me and let me know so I can direct you to it.

Anonymous · Answer

As I think many people have pointed out, crude oil is only one portion of the value chain.  It takes about a month to refine and during that time, refining capacity drives the price at the pump much more than movements in WTI crude.

haggismoffat · Answer

you really aren't likely to see any real difference based on the monthly delivery price. This is due to expectations and futures have likely already taken into account this price. So a real change is only when the actual is different from the expected. gas refineries purchase contracts in advance so that is the price or cost they see in the future.

Anonymous · Answer

when the price of crude oil increases you expect it to go up most likely a month after.

taxes imposed on petroleum products are already fixed and wont really change unless approve by the gov't

what can negate the effect of oil price increase is the appreciation of your currency

Anonymous · Answer

it gives the Oil Companies the excuse to commit armed robbery with a gas pump rather than a gun.

How does crude oil price affect the gas price at the pump?

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