Oil's up, gas is down. Why?

@CNNMoneyInvest December 1, 2011: 7:39 AM ET
Despite the close relationship between the two, oil and gasoline prices have moved in opposite directions in recent weeks.

Gasoline prices at the pump are dropping, for now.

NEW YORK (CNNMoney) -- Those anxiously watching the rally in U.S. oil prices over the past few weeks have received a pleasant surprise at the pump: while oil has shot upward, gasoline is moving in the opposite direction.

The moves may seem counter-intuitive, since crude oil is used to produce gas. But while the two are closely related, there are a number of factors that can push their prices apart in the short term.

U.S. oil prices are up nearly 9% over the past month and have pushed above the $100 a barrel mark. At the same time, the average retail price of a gallon of gasoline has dropped to $3.30 as of Wednesday from around $3.45 a month ago.

Retail gasoline is more expensive than crude oil because of additional costs such as taxes, distribution and the refining process.

Historically, oil and gas "have always moved in tandem," with gas prices following on oil moves within three to six months, said Patrick Vahid, a senior trader at Sonic Futures. They do face different supply-and-demand forces, however, and are sometimes pulled in opposite directions.

For one thing, gasoline isn't the only product for which crude oil is used.

The U.S. Energy Information Administration says for every barrel of crude oil produced in America in 2010, just 42% went to gasoline.

The rest was divided among other products including diesel, jet fuel and consumer goods such as tires and ink. Demand for these products also goes some way to shaping oil prices. Diesel, in demand as a generator of electricity in the developing world, has become more expensive in recent months.

Fed fuels commodity price spike

The U.S. benchmark -- West Texas Intermediate, or WTI -- has been surging on the draining of a supply glut at the main U.S. oil trading hub in Oklahoma that had previously held down the price.

WTI, though, is just one variety of oil and is used primarily in the Midwest. Refineries on the East Coast are more likely to use international varieties of oil whose prices are indexed to Brent, the European benchmark, according to Stephen Shorck, publisher of the industry newsletter The Schork Report.

Brent has already been up above $100 a barrel for months and has held fairly steady while WTI has risen.

The drop in retail gas prices, Shorck added, is partly seasonal, as refiners swtich to winter-grade gasoline that is cheaper to produce. Gas consumption also drops as the weather gets colder -- fewer on-a-whim road trips -- and that pushes down the price.

Looking ahead, the Energy Information Administration said in October that U.S. gas prices would average $3.52 per gallon this year before dropping to $3.43 in 2012 amid continued sluggishness in the economy. With the recent rally in U.S. oil prices, however, Shorck said price rises at the pump could come in just a few weeks.

Oil roars back to $100, but does anybody care?

Vahid agreed, calling the divergence in oil and gas prices a short-term phenomenon.

"They tend to always follow suit eventually," he said. "If [oil] stabilizes at these higher levels, then the price of gas will creep up and stabilize as well." To top of page

Most Popular
Europe debt crisis and jobs numbers to drive stocks
 
Farmers hit the jackpot in Kansas oil boom
 
Apple to DOJ: Bite me
 
Postal Service offers $15,000 buyouts to 45,000 mail handlers
 
Summer gas prices - as good as they'll get
 
Index Last Change % Change
Dow 12,454.83 -74.92 -0.60%
Nasdaq 2,837.53 -1.85 -0.07%
S&P 500 1,317.82 -2.86 -0.22%
Treasuries 1.74 -0.01 -0.80%
Data as of 1:36pm ET
Company Price Change % Change
Bank of America Corp... 7.15 0.01 0.14%
Sprint Nextel Corp 2.62 0.09 3.56%
Cisco Systems Inc 16.33 -0.06 -0.37%
Chesapeake Energy Co... 15.81 0.23 1.48%
Ford Motor Co 10.60 0.01 0.09%
Data as of May 25
Overnight Avg Rate Latest Change Last Week
30 yr fixed3.80%3.80%
15 yr fixed3.09%3.11%
5/1 ARM2.65%2.69%
30 yr refi3.77%3.86%
15 yr refi3.09%3.21%
Rate data provided
by Bankrate.com
View rates in your area
 
Find personalized rates:
Hot List
CEOs who served their country

FedEx's Fred Smith did 2 tours of duty in Vietnam as a Marine. Meet 10 Fortune 500 executives who served in the U.S. military.  More

Farmer power forces Big Oil bidding war 

Group of farmers in southern Kansas pool their land to more than double their money from an oil company for their mineral rights. Play

6 great Memorial Day car deals

Here are some hot tips if you're going out car-shopping this weekend. More

Build your own mail-order home

This 150-square-foot home can be shipped anywhere and then assembled like Ikea furniture. More

How we got our jobs after college

Many Class of 2012 grads find themselves without work. But those who landed jobs say internships are key. More

Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2012 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2012 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2012. All rights reserved. Most stock quote data provided by BATS.