Good Question: Why Aren’t Gas Prices Falling Quicker?

MINNEAPOLIS (WCCO) — At this time last year, crude oil was around $80 a barrel and gasoline prices were around $2.80 a gallon. On Tuesday, crude oil is close to $80 and gas is around $3.40. So, why aren’t gas prices that low now?

“Prices rise like rockets and fall like feathers,” said Mark Bergen, and expert in pricing at the University of Minnesota’s Carlson School of Management.

Indeed, the last time crude oil was at $80, prices were on the way up. So, prices went up to $2.80 a gallon. This time, oil is on the way down.

“When costs go down, as a seller, I’d love to stay up at that higher price point as long as I can. And so there’s a tendency to try to go down a little bit more slowly,” Bergen said.

There are two other structural differences with gasoline comparing this year to that.

“Gas doesn’t necessarily track off of West Texas crude, which is the most commonly quoted crude in the media,” said Sterling Smith, a commodities market analyst based in St. Paul.

West Texas Intermediate crude closed Tuesday around $84 a barrel.

“All crude is not made the same,” said Smith.

Over the past year, U.S. gas prices have tracked more closely with another kind of crude: Brent.

Historically, Brent has been priced just a couple bucks higher than West Texas crude. It’s considered easier to refine and it’s a little more expensive to pull out of the ground.

Starting late in 2010, however, the price of Brent and West Texas crude began to diverge drastically.

As of Tuesday, “the Brent crude is sitting about 109, that spread is getting wider again,” said Smith.

So, while West Texas crude prices have dropped, Brent crude prices are not nearly as low. Gas stays more expensive.

Also consider the corn factor. Ten percent of Minnesota’s gas is made of ethanol.

The last time West Texas crude was at $80, “corn was $3.75 a bushel. It’s nearly $7 a bushel now,” said Smith. “That’s also affecting the price of gas and part of the reason why gas prices are not coming down.”

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  • Guy

    And then there is the “gouge factor” … as in “how much can we…”

  • Richard in Minneapolis

    If you don’t like the price of gas the answer is simple: Don’t buy any! That is how a free market works. Or are you all closet communists?

    • Mike

      And your statement proves that civilization and a truly free market can’t coexist!
      Without myriad rules, regulations and laws, we would all be doomed. We cover all the taxes for the oil companies and send youth into combat on their behalf, none of that is free either. People like you and the way you think should move to Somalia, were free markets and no regulation are standard procedure. Let’s see how that works out for ya……

  • exp

    It’s just another excuse of the week that the oil companies are using. They seem to come up with another one every time the public demands to know why they’re gouging us. Why use Brent? Because it’s easier to refine=More profits. Its price is higher= More profits.
    It looks that even though we drill, drill, drill, and now have huge untapped reserves of our own the oil companies are still going to find excuses to keep prices high to drill, drill, drill us.
    As for not buying gas, how’s that horse and buggy working out for you? What about your iPod? Oh! that’s made with plastic that came from oil. How about your recycled “green” grocery bags? Oh, they are made of recycled plastic nylon too, which comes from oil. You can’t NOT buy oil anymore, either directly or indirectly unless you want to be Amish.

  • poo bear

    The simple explanation is speculators in the market. The free market dirty little secret.

  • Jared

    This is according to the National Bureau of Economic Research…

  • Bullwinkle

    It’s because the Federal Reserve keeps printing money. Say you have 1 Babe Ruth card and it’s worth a million dollars. Suddenly the market is satured with another 20 million Babe Ruth cards that were found in a locker, now the scarcity of the baseball card is reduced and your card fetches less on the market.
    This is what’s happening with the dollar. It’s losing it’s purchasing power because they keep printing more of it. The dollar is over valued because there are too many of them.

    • Mike

      And without the Federal Reserve we would all be using one bank, that sets all pricing and many more people and institutions would be bankrupt. Read your history about the ‘good old’ times when they abolished the Federal Reserve and why they had to reconstitute it before your blow your inane stupidity. The Federal Reserve is there for a reason, and Ron Paul is a nut job.

      • Joseph Ziolkowski

        If we are to have the fed, at least it should be audited regularly. That is a recommendation by RP and it’s not nutty at all.

        You should probably get back to your government desk job and quit with these comments…You’re wasting my tax money!

        Or, maybe it’s this..You should probably get upstairs so Mommy can feed you breakfast and show you what clothes to wear today.

      • Reality sucks

        Mike, I see your passion. But it would be more correctly understood if I take your first sentence and edit it to read: BECAUSE OF the Federal Reserve we ARE using one bank, that sets all pricing and THAT IS WHY many more people and institutions ARE GOING bankrupt.

  • Warren Buffett

    “The dollar is over valued because there are too many of them.”


  • Bullwinkle

    Yes, over valued. You think it’s a dollar and it’s reall worth 40 cents. The price of gas has actually gone done when priced in silver or gold. Gold was $400 an ounce a few years ago, now it’s $1788 an ounce. So that means you can buy more gas with gold than dollars. When the dollar depreciates , you need more of them to purchase the same product or service..

    The reason I say it’s over valued is because many people don’t understand this concept. They still think a dollar represents a dollar of years past

    • Reality sucks

      You are correct! Gold is not going up—the dollar is going down. This is, stand alone, the most important concept for every citizen to understand at this point. Gold is not up X%, rather the U.S. dollar has depreciated by X% versus the world’s neutral money supply, gold. There is no limit to the amount of money Bernanke can or will print. Gold’s theoretical upside is infinite in a purely paper money world. Once you understand this, you recognize that gold is not the bubble but rather the biggest bubble on planet earth today is the U.S. dollar itself.

  • Kevin

    We’re lucky our dollar will buy anything any more. The US is a debtor nation and we’re living on borrowed time. The defecit is massive and increasing exponentially and the only reason that we can buy anything is that the price of oil is pegged on the dollar. As soon as Opec decides to peg a barrel of oil on Chinese currency, gas will hit $7 to $10 a gal and then listen to the crying. The so called “Arab spring” is bringing this reality a little closer as are the rabid environmentalists that won’t let us drill in this country or off our coasts. All these factors spell disaster for the US but all people can do is complain about the price? I thank God we can still get it so cheap, look what the pay in Europe already.

    • MIke

      The USA is the world’s leading superpower. It has China’s (gross) economic size, matches Russia’s strategic military power, and is as technologically advanced as Japan with 2.5x its population. Our deficit is not at the highest levels to GDP in our history and we have done fine since it was. Here is a great article for you to read;

      • Joseph Ziolkowski

        Our country has never done well when we have high debt to GDP, so your argument, which essentially is an attempt to justify high debt to GDP ratios is junk. The bottom line is we should not be in this situation and the only way to truly solve the problem is to use common sense economics that everyone knows works. And it works from the individual, as the smallest unit, all the way up to the world’s largest government. We shouldn’t spend more than we have, especially when times are tough. And any time we do, we incur debt one way or another.

        On your link, did you even notice where the last spike on the graph was? Yes smarty, it was during the Great Depression!

        And one more thing, there is a difference between debt and deficit. You interchange the two like they are synonomous. They are not. Get some real truth and stop regurgitating things other liberals tell you!

        • Mike

          Funny you would use the last depression as an an example. Like the one we are currently in, caused by Republican deregulation policies, cutting taxes during a recession and starting wars and not paying for them during their administrations. Funny how that wheel of history keeps repeating itself.

          • Jared

            We are not even close to a depression and technically speaking we exited the recession in June of 2009.

  • Steve

    All about greed !!!

  • Bill

    Let’s not forget that when oil was in the mid 70s gas was just over $2. When the price of oil went up 33% to $100 the price of gas nearly doubled to $4. People talk of a gas shortage, there is no shortage — as long as the price is where big oil wants it to be you can buy all you want. When we had a real shortage in the 1970’s, it didn’t matter what you were willing to pay the stations had no gas to sell, Nixon implemented the windfall profit tax. With the gas companies making record profits where’s the tax? I could understand Bush not implementing it on his oil company buddies, but why hasn’t Obama done it? It can’t be a jobs issue, if these refineries are working at full capacity there ishould be no job loss and no new jobs created — net zero.

  • Otto

    Another very simple way to cut the demand for gasoline is to slow down. It is amazing how much gas it saves. And saving gas in your tank, will reduce demand at the pump, which will help the prices drop.

    • ok

      @OTTO and yes your energy plan sounds like the Obama plan. Slow down and keep your tires inflated. You sound like a failed economist. By the way, one of my cars is a small 4 cylinder and the mpg difference between 60 mph and 70 mph is amazingly small.

  • Jared

    Just to set a few facts straight 1.) The Federal Reserve does NOT print money, this is the job of the treasury. Sure they may be injecting money into our economy to provide liquidity to institution so they do not become solvent but these insutions are not spending the money, they are depositing it back into their banks which in turn deposit in the Federal Reserve which is the reason why the balance of Federal Reserve funds has increased dramatically starting in 2008. 2.) If you are arguing that inflation is the cause of gas prices not coming down you would be incorrect. The Fed has kept interest rates and the federal funds rate at near all time lows and as a result (according to NBER) inflation rates have not increased.

    • Jared

      I apologize for the typo, I meant to say insolvent earlier not solvent*

  • KAP

    So my question is, now that gas prices are coming down some, why aren’t diesel prices coming down too?

  • d dog

    Take the bus, even for just once a week and see what it does to oil companies and oil prices.

  • d dog

    Though the sooner we run out of oil the sooner we will move on to the next best bet, hydrogen, the wave of the future.

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