My take on gas prices

Disclaimer up front -- I'm an astronomer and have never taken an econ or any other kind of business or finance class. I will not pretend to even remotely be an expert on financial markets of any sort.

That being said, I am eminently qualified to give my inexpert opinion. I've read all of the articles that say why gas prices are so high, demand in China and India, the new summer low emission blends, etc etc etc. Everyone says there is no way to reduce prices in the short term because of all of the demand. However, the trend that I have seen is that if CNN (my default news source) says that oil prices jumped that day, then sure enough every single gas station in our town will increase their price to the exact same number that day at exactly the same time. So there is a direct, immediate correlation between the price of oil and gas prices. Except when there isn't.

What I mean is that in the past week, there have been two stories in the news about oil prices going down -- the first had to do with an unexpected excess supply above what analysts predicted. Oil prices dropped about $2 a barrel, but did the direct, immediate correlation between gas prices and oil prices that holds when oil prices jump also hold when oil prices fall? No. Next, there was the article about Iran writing a letter to the US, and how oil prices fell $6 a barrel. Any correlation between the price of oil falling and gas prices? Nope. Still $2.93 a barrel gallon.

I'm sure there is some good macroeconomic reason why this is true. However, someone needs to explain it to me, because I can't understand a correlation that works in one direction but not the other.


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