Are Gasoline Prices Too High?

By: Bob van der Valk

Consumers are once again being told with gas price stories we see on TV and read in newspapers gas prices are too high and much worse now than they have been in the past. But gasoline consumers have short memories and will forget the details once the pump prices start going lower again.

Gasoline prices are unlikely to go back down as fast as they went up with the Middle East North Africa unrest continuing, the fallout of the Japanese nuclear plant meltdown not yet determined as well as the requirements by the US Environment Protection Agency (EPA) creating boutique gasoline in parts of the country with excessive air pollution.

The Mississippi River flooding is also having an impact by temporarily halting gasoline prices from continuing to decrease even as the spot market already gave up 50 cents per gallon since May 2, 2011.

Crude oil is hovering right around $100 dollars a barrel, but we can all remember when oil was over $100 dollars, even $120 and $140 dollars a barrel not too long ago.

West Texas Intermediate (WTI) crude oil located in Cushing, OK was the financial benchmark used in the past to set the price for virtually all global oil pricing. At the beginning of this year it was replaced with the Brent crude oil posting on the Intercontinental Exchange of London. The WTI price is now disconnected with crude oil markets and does not represent the “real” price of crude oil.

Cushing is filled to the brim with supply and because it is landlocked and difficult to ship incoming crude further south to the US Gulf Coast refineries. Financially, the WTI contract is good for trading by index investors, ETF’s, energy hedge funds and individual traders, all going long in a market betting on crude prices to go back up.

In this video, Jimmy McMillan’s starting a new campaign and slogan–“Gasoline is too damn high”–in front of the White House.  But would his proposal–More Drilling = More Gasoline = Lower Gasoline Prices–yield the desirable result?  The answer is we need a National Energy Policy to give us long term security from world events playing havoc with the price we pay at the pump.

About the Author – Bob van der Valk is a Petroleum Industry Analyst with over 50 years of experience in the petroleum, gasoline and lubricants industry.  You can reach Bob at: [email protected] or (406) 853-4251

The views and opinions expressed herein are the author’s own and do not necessarily reflect those of EconMatters.

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