Tuesday, February 17, 2009

Oil / Gas Divergence

The price of oil has come crashing down in recent weeks, but the price of gas hasn't followed (great chart of this is over at Bespoke).

Why? According to AP Energy Writer John Porrettoe:

The price of gas is indeed tied to oil. It's just a matter of which oil.

The benchmark for crude oil prices is West Texas Intermediate, drilled exactly where you would imagine. That's the price, set at the New York Mercantile Exchange, that you see quoted on business channels and in the morning paper.

Right now, in an unusual market trend, West Texas crude is selling for much less than inferior grades of crude from other places around the world. A severe economic downturn has left U.S. storage facilities brimming with it, sending prices for the premium crude to five-year lows.

But it is the overseas crude that goes into most of the gas made in the United States. So prices at the pump will probably keep going up no matter what happens to the benchmark price of crude oil.
Hey, at least we're back to the longer term mean.

Source: EIA