Why lower oil doesn't mean lower gas prices

August 11, 2011 6:35:50 PM PDT
There is a major disconnect between the price of oil and what consumers pay at the pump.

Oil prices are well-below where they were three months ago, when a barrel of crude was going for over $100, yet gas prices remain inexplicably high.

Cliff Swisher is a Walnut Creek cement contractor whose livelihood depends on his ability to move his men and equipment from place to place in 13 vehicles.

Even as the price of crude oil plunges, Swisher's fuel cost threatened to put him out of business.

"It's caused us to increase our credit card limits, because our fuel costs have gone up so much in the last year," Swisher said.

The average price of regular unleaded is now $3.76 in California, which is two cents cheaper than it was a month ago, even though the price of oil has dropped nearly $30 since May.

"It will be until it comes down to about $1.25," said Clara Ceragiola when asked if the price of gas was still too high for her.

According to UC Berkeley's Severin Borenstein with the Energy Institute, the price of gasoline typically drops 2.5 cents per gallon for every dollar decrease in the price of oil, but that has yet to happen in California.

"It may seem like the prices rise faster than they fall, but they actually don't," said Chevron spokesperson Sean Comey. "In fact, the U.S. Department of Energy did a study a few years ago where they looked into this and what they discovered is that prices actually rise and fall at about the same speed."

If crude oil stays low, analysts do expect the price at the pumps to drop as much as 30 cents, but not until after Labor Day.

"After labor day, everyone's back in school (and) work," said commuter Sharron Tate, "so that's not helping us. We need it now."

Ohio State's study found that consumers have a share of the blame for prices going down slowly: One prices go down a few cents, drivers are relieved so they stop shopping around. Without competition, gas stations are less-inclined to lower prices.


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