Gas prices have gone up in the past few days. Crude oil prices are at record highs. Coincidence? As Jack Palance used to say....Believe it, or not.
Crude oil is the main ingredient in the gasoline recipe. Where it goes, gas prices follow. So what's been driving crude oil prices? As the price is set on the commodity markets driven by numerous global factors, it's never simple. In fact it's quite confusing. I think this article from the BBC sums it up best. It quotes Mark Lewis from Energy Market Consultants as saying:
"The markets are looking for signals from the fundamentals. Some of them are irrelevant, some of them are wrong, some of them are meaningless, but they affect prices nevertheless."
By fundamentals, he's talking about the factors that influence the supply of, and demand for oil.
That means when the media go looking for answers on market moves, they have to try and figure out why many traders made many decisions to buy or sell crude oil based on many different factors that they all deemed to be important. Imagine you, me and a thousand other people betting on the same horse in a horse race and someone trying to find out why we all bet the same way. Some may have looked at the fundamentals (track record, jockey skill, age) while others may have been moved to bet for other, less rational reasons (colour of jockey's uniform, horse shared a name with your favourite aunt, etc.). All of us influenced the odds, but for different reasons that made sense at the time. But trying to sum up those reasons in one or two sentences would be extremely difficult.
So the reasons may be varied, but the impact on gas prices is usually the same. When crude oil goes up or down, that's reflected in the price at the pump. Clearly it gets more attention on the way up, but it works both ways. And you can bet on that horse. Of course.
Photo Credit: Jeff Kubina