Burntorange, you're right- it's way confusing. Here's what I understand about it.
There are many factors influencing crude prices, and there are many things influencing gasoline prices, and the factors aren't necessarily the same. Keep in mind the price of crude accounts for only about 60 percent of gasoline prices. Not all fluctuations in crude prices impact gasoline prices with the same speed or to the same degree.
So, you can imagine some of the things that affect crude prices-what production levels OPEC decides to set, what the opinions of futures traders are, i.e. whether or not they are bullish on the outlook for crude prices in the future, tensions in the middle east or strife in oil-producing countries like Nigeria, weather (like hurricanes in the gulf), and the biggy, what the world demand for oil products is at any given time. So, it's logical that when this stuff hits the headlines, we watch crude prices rise and soon prices for gasoline follow.
Where this gets more complicated is what affects the price of gasoline when the crude gets here for refining into gasoline. These are all the factors that don't make the headlines like the above stuff. Domestically, gasoline prices are determined by how much the refiners decide to produce, refinery maintenance (down time), seasonal blend changes in the formulation of gasoline, and what the gas station owners decide to charge.
What many people don't realize is that the major oil companies own less than 5 percent of gas stations. It's not a high-profit business for most. Most stations are owned by small retailers. These guys are at liberty (within certain legal limits) to set prices at whatever they want. Ever notice how a Mobil station near a freeway often has higher gas prices than one a few miles away? Travelers aren't going to traipse all over the countryside to save three cents per gallon.
Crude price is currently falling, but gasoline prices are going up because the refiners are sharply cutting production of gasoline because demand for it has fallen. Less production=less supply=higher prices. They are cutting prices because gasoline is not a high-profit item for refiners compared to the other stuff they can make from crude.
Now it gets even murkier. When crude prices are on the rise, the difference between what a refinery pays for crude oil and the money they make from the refined products tends to decrease- this is called the refining margin. I'm not sure I understand this very well (hey, I'm a carpenter), because it seems the big oil companies always turn record profits no matter what happens to crude prices. I guess the important point is that the refiners don't always do the same.
Gas station owners are under no marching orders from the big boys when it comes to setting gasoline prices. They set prices based on what the refiners charge them, what the competition is doing, and like many of us in business do, what prices they can get away with. I have a friend who owns a Sinclair station in Montana. He says one of the difficulties is charging enough for gasoline to be able to afford the next truckload. When you're dropping 15 or 20 grand on a load of petrol, you need to watch your p's and q's.
As I recall, I think my friend said he cannot charge less than 5 cents per gallon more than he pays for gasoline. This is a law designed to prevent Costco or Wal-Mart from undergutting gas prices to take control of the market.
Hope this helps.
