- Published on Monday, 30 March 2015 13:23
A Crude Relationship (Part 1)
by Adrian Cernea, Senior Consultant, CFS
The ability to predict what the price of crude oil will be tomorrow would make anyone rich virtually overnight. Were I to have this ability, I could have easily exchanged my seat in front of my computer with a beach chair on a sunny island in the Bahamas! Unfortunately not a lot of people in this world have much say in or control over this matter.
The global price variability of crude affects all of us either directly or indirectly. Directly, through the price we pay when we fill up our cars to go to work, or indirectly when buying groceries that have been transported to our favourite supermarket, consuming some derivative of oil in the process.
Moreover, crude oil, as one of the main energy sources in our current civilization, has a direct impact on the world economy as a whole and subsequently on almost every aspect of our daily lives.
We recently heard about global oil prices going down dramatically and how this can have such a negative impact on the economy and inherently on our lifestyles. Most of us that are not economists have a hard time understanding why this is the case. What we can more easily see though is the cost of gasoline at the pump. So the logic is: if crude prices go down, shouldn’t gas prices decrease and make life easier for everyone? Well, theoretically yes, but only in the short run. This depends on a plethora of interrelating factors. Long term implications are infinitely harder to gauge even by the experts.
The purpose of this article, however, is not to project the future of oil prices and the next global meltdown, but simply to give a bit of insight into how gasoline prices at the pump correlate with the daily decreases and increases in global crude oil prices. When oil goes down by, say, 50%, why doesn’t gasoline follow by the same amount? And perhaps, even more interestingly, why paying less at the pump can actually result in paying more at the end of the day!