Are Gasoline Prices Going Higher?

The EIA says gasoline retailers and wholesalers account for about 13% of the total cost of gasoline. Refiners get another 7% and taxes eat up 16%. The remaining 64% is crude oil. Based on a price of $2.55 per gallon the breakdown is as follows: Crude oil – $1.63, Taxes – 41 cents, Refining - 18 cents and Distribution/Marketing – 33 cents.

From January 2003 to October 2009, oil prices have increased 125% while gasoline prices have risen 75% (Based on data from the Energy Information Administration). For the most part, the price increases for both crude oil and gasoline track reasonably well. But during the period September 2007 to October 2008 they started deviating with crude oil price increases accelerating faster than gasoline prices.  It appears that in the past 3 months crude oil prices and gasoline prices are starting to deviate again.

Commentary – I believe the explanation for the deviation in price increases was a result of decreased demand. Consumers cut back on their gasoline usage and the refiners and retail outlets responded by not increasing prices despite the fact that crude oil prices were still rising. This has been proven out by lower refiner profit margins. It appears that the deviation is starting again. Strictly based on the chart above it appears that we are either going to see crude prices decline or gasoline prices are going higher. Refining margins are already low, so this time I believe gasoline prices will go higher. If crude oil price increases continue, we may see $4.00 gasoline again.