Gas and oil prices and exchange traded funds (ETFs) have been the subject of nearly non-stop discussion for almost a year. We spoke with API, a trade association that educates and informs the public about the petroleum industry.
Like many, we’ve reported a few times on the reasons gas and oil prices aren’t in lockstep. Part of the reason gas prices continued to rise despite the price of oil declining has been blamed on reduced refinery output, but Chief Economist John Felmy says that this isn’t exactly the case.
Refinery output is down, but for a couple of reasons:
1. Refineries are going through maintenance right now, a twice-yearly event that takes place for the purpose of upgrades, safety and preparations for the coming season (particularly the switchover to summer gas).
2. Refineries have become more efficient in their production, so the full capacity isn’t needed. “Refiners are squeezing more out of the barrel by the changes they’re making – that increases the total volume of gas being produced,” Felmy points out.
In fact, Felmy says, if you compare the average production of gas now to a year ago, it’s higher, and even reached an all-time high in January.
Instead, to find out why gas prices are going up despite the continued decline in oil prices, just blame good old supply and demand.
Consumer demand is actually increasing, up 1.7% last month from a year ago. Felmy notes that gas was $3.14 on average a year ago, all the way down to $1.91a gallon as of yesterday. Despite the recent price jump in gasoline, gas prices have been on a downtrend since Feb. 14.
“Consumers tend to have lifestyles that involve activity,” Felmy says. They’re out driving and realizing that the cost of filling up is much lower than it was not long ago.
So, why the disparity between what’s being said and what’s actually happening? Felmy has one idea.
“There’s too much discussion of how bad the economy is…gas demand is not consistent with that.”
United States Gasoline (UGA) is up 4.1% year-to-date.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.