Price Of Crude Down About 20 Percent. Price Of Gas…? Not So Much.

Here’s an interesting take on Granite State gas prices from the New Hampshire Business Review.

 

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After Labor Day, could we see the triumphant return of gas prices below $3.50?

“The cost of a barrel of crude was $81 on Wednesday, about a 20 percent decrease from a couple of months ago. The fall in price is due in large part to global economic uncertainty stemming in part from the U.S. credit downgrade.

But Dr. Massood Samii, chair of the international business department at Southern New Hampshire University, said, ‘I don’t expect it to go much further down. Barring any major political upheaval, $80 to $90 seems to be a reasonable target, and that should lead to some decline in gasoline prices.'”

 So why wouldn’t we see a proportionate decline in gas prices as the price of crude goes down?

“The cost of crude oil accounts for about one-third of the cost of gasoline at the pump, he said. The other two-thirds are a combination of factors – taxes, transportation and refinery costs, and profits taken at every step of the value chain, from wholesaler to distributor to gas station.

For the most part, those costs are fixed, so a decline in the price of crude oil only decreases the price of gas by a fraction.

In fact, by the time gasoline arrives at the gas station, wholesalers pretty much dictate the price that retailers charge, he said. Most gas stations make only a ‘minimal’ profit margin – a few cents on each gallon sold, he said.”

The NHBR also quotes Samii as saying we’ll probably see gas prices in New Hampshire fall below $3.50 sometime after Labor Day, when summer winds-down and people start to lay off the heavy-duty driving.