Why gas is so expensive, when oil isn't

gas prices, oil pricesPrices at the pump may soon set a record, but analysts say U.S. oil prices and gas prices from 2008 don't reflect the true cost of crude. By Steve Hargreaves, senior writer

NEW YORK (CNNMoney) -- Gasoline prices have been rising for months and are within striking distance of their 2008 all-time high of $4.11 a gallon. But while oil prices are above $100 a barrel, they're still 24% below their 2008 all-time high.

So why is gasoline so expensive, when oil is so far off its record price?

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The answer is that the price of oil Americans see every day has little to do with the price of gasoline at the pump.

Those prices are for a particular type of oil -- West Texas Intermediate -- that's stored in Cushing, Okla.

Thanks to increasing supplies from the Rocky Mountain states and Canada's oil sands, plus a lack of pipelines to move that oil out, there's currently a big glut of oil in Cushing. That's pushing the price of West Texas crude down.

Prices for most other types of oil, which make up the vast majority of oil that refiners use in U.S. gasoline, are much higher than West Texas Intermediate. London's Brent crude, for example, was closer to $124 a barrel on Wednesday.

"It's really a broken benchmark," Tom Kloza, chief oil analyst at the Oil Price Information Service, said of the West Texas price.

Also, it's important to remember that oil and gasoline prices don't move in lockstep with one another. Gas prices lag behind oil prices by a couple of weeks.

During the oil price spike of 2008, gas prices were still trying to catch up as oil prices had already started falling.

That put refiners in a tight spot.

"[Refiners] couldn't sell their product for as much as crude was increasing," Rayola Dougher, a senior economic advisor for the American Petroleum Institute. "People lost money."

Kloza, who crunches numbers for motorist group AAA, agrees. "Crude went up," in 2008, he said, "but gas prices did not follow."

The difference between what refiners pay for a gallon of oil now and how much a gallon of gas sells for -- excluding taxes -- is about 78 cents, said Dougher.

That's slightly higher than normal, but not terribly so, said Dougher.

That's little consolation to drivers, who can expect the price of gas to continue rising. Gas prices have jumped 29 cents over the past 29 days to a nationwide average of $3.84 a gallon, according to AAA.  To top of page

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