Financial Q&A: If crude-oil price is down, why are gas prices up?

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Q: Can you explain why gas prices have gone up more the 25 percent this year while the price of oil has gone down 10 percent or more?

T.M., via e-mail

A: Your question reflects something that always frustrates consumers: the disconnect that sometimes occurs between crude oil prices and retail gasoline prices.

In early January, for instance, crude oil prices fell $5.51 per barrel, but retail gasoline prices rose by 15 cents in some states, points out Gregg Laskoski, managing director of public relations of AAA Auto Club South. January and February reflected the disconnect because crude oil prices remained weak (trading between $46 and $37 per barrel) while retail gasoline prices increased steadily up until mid-February.

While retail fuel prices usually follow the same direction as crude oil prices, that's not always the case – as you've seen.

Even if the economy wasn't so distressed, Mr. Laskoski says we would still expect to see retail gasoline prices rise at this time of year. Here's why: Federal law requires a "summer blend" of gasoline be made available to consumers by May 1 in order to reduce smog and pollution in metropolitan areas. Because it contains more additives, it's more expensive to produce than the winter blend.

Refineries must flush out their winter blend in order to begin producing the summer blend. It's an extensive process that takes several weeks. This transition period is also the time of year when most refineries discover infrastructure problems that require repair, and some shut down parts of their operation temporarily in order to address those issues. This tightens the nation's available gasoline supply at a time when consumer demand tends to gradually increase.

US consumption of gasoline follows predictable and consistent seasonal patterns, Laskoski notes. It increases as we move closer to Memorial Day weekend, peaks in midsummer, and slows once we pass Labor Day weekend.

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