Your cost more vacation? Oil prices and gasoline

As expected, there is a strong relationship between the price of oil and gasoline prices. However, when oil prices soared in 2008, the increase was almost four times greater than the increase in gasoline and more than 37 times higher than inflation. In this article, we will examine the relationship between crude oil and retail gasoline prices over the last 26 years and make a guess in the short term, the future price of oil. If you go ahead and make vacation plans or will high gas prices pose a problem? Read on to find the answer.

Crude Oil and Gasoline

Oil prices fluctuate throughout the day. The USA. Energy Information Administration (EIA) publishes the price of oil every day and prices weekly retail gasoline. Since oil has a daily price and the gas is weekly, I used the closing price from the day oil prices retail gas were released. The following table illustrates how closely their prices follow each other. Before its peak in 2008 [C], the difference between them was relatively consistent. When prices, however, jumped the gap narrowed considerably. In short, the price of gasoline increased at a much slower pace than oil.

Using data from the weekly prices of December 21, 1998 [A], oil closed the day at $ 10.86 a barrel, while retail gasoline ended at $ 0.94 per gallon. On July 14, 2008 [C], 9.6 years later, oil peaked; hit $ 145.16 per barrel and gasoline reached $ 4.11 per gallon. During this period, oil prices rose 1,237%, gasoline rose 336%, and inflation rose by a mere 33%. In summary, the increase in the oil was more than three times greater than the increase in gasoline and over 37 times the inflation. When a shorter, January 22, 2007 to July 14, 2008 [B to C] period is examined, oil rose 184%, gasoline rose 90%, and inflation increased by 8%. For more details, see the table below.

Why the price of gasoline rising as much as crude oil? There were two main factors responsible for this. First, gasoline consumption (ie, demand) fell during the global recession, especially in the US, the world's largest consumer of petroleum products. Second, although oil stocks were relatively low in the US at that time, there was a lot of oil in OPEC member countries, including its largest producer, Saudi Arabia. There were other factors, but these were two of the main reasons.

Where prices from now?

Oil demand is very dependent on the economic strength (or lack thereof). Given the weak state of the global economy, prices are likely to remain low for an extended period. According to the Information Administration US Energy, world production (ie, food) will remain above consumption (ie, demand) until mid 2017. The price of oil has a strong tendency to rise and down according to supply and demand. Therefore, unless the oil supply decreases and demand increases, I do not see a catalyst to suggest oil prices will move very high. However, in the short term, supply reduction is more likely that an increase in demand.

It is not profitable for many companies to drill with oil prices at such a depressed level. Moreover, this has led to a series of bankruptcies and no doubt there will be more to come. With fewer oil and gas companies, there will be less production. In the absence of significant production cuts, we can expect oil prices and gasoline prices remain low. The EIA believes there is a 95% probability that crude oil will remain below $ 55 per barrel throughout 2016. This will result in affordable gasoline. Therefore, your vacation plans must remain intact.

Related eXtra/News business news News Today