Where I live they always predict on the radio if gas will go up or down tomorrow and get it right. What is involved in making that prediction?
In: 5
Gasoline that you put in your car is refined (heavily processed) from crude oil. At any given point in time you can observe the price of oil as an input into the refinement of gasoline but what can sometimes take time to work it’s way through to the end price of gasoline is the amount of refining capacity available. When refiners are working all out to produce enough supply to meet demand, they generally move the selling price of gasoline higher as demand is very strong and so a price increase will not impact their ability to sell volume (and vice-versa when they have a lot of excess capacity). The difference between where refined gasoline is sold relative to the crude oil input cost is referred to as the “crack spread”. Thus if oil prices move higher today and crack spreads are high, it is likely that gasoline prices are going to move higher in the near term.
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