The answer to the question in the title of this piece was stated pretty assuredly in a 2005 publication by the Federal Trade Commission. The most important factor in the price of gasoline, the 166-page report concluded, was “the world price of crude oil“. It went on: “Over the last 20 years, changes in crude oil prices have explained 85% of the changes in the price for gasoline in the U.S.”1 And there aren’t too many macro-unknowns out there to affect the price of crude oil. The world produces roughly 85 million barrels of oil every day and every day the world’s population consumes about 90 million barrels. And the generally accepted relationship between crude oil and gasoline is that for every $1 dollar per barrel crude oil moves, gas prices move about 2 ½ cents at the pump. It’s also generally accepted that there’s approximately 1.5 trillion barrels of oil yet to be extracted from the planet – what are called proven reserves – equal to about 50 more years of supply based on our current consumption rate. And according to OPEC’s web site, that cartel – created over 50 years ago – controls about 80% of those reserves.
OPEC Share of World Crude Oil Reserves 2012
Account for some margin of error and those are all pretty workable numbers for a global commodity like crude oil to live with. The quandary for tracking gas prices isn’t that you can’t measure them accurately against the price of crude oil. That relationship is pretty ingrained. It’s the many other factors that also come into play – at different levels of influence and intensity and at irregular intervals – that cause gasoline prices to move.
Just take a look at the last 6 months. Crude oil shot up over 20% from $86 per barrel to almost $110 per barrel. It then fell over 10% back down to near $96 per barrel.
