The strange story of gasoline prices

I’m not a university trained economist or a mathematician, but I do have a little common sense, and a calculator. When I put the two together, I come up with a few questions.

This has to do with the price of gasoline in Hawaii, now hovering around $3.25 a gallon, a price which ranks among the highest in the country. This morning I heard on the news that the price of a barrel of oil is close to $100.

$100 a barrel for oil, and $3.25 a gallon for gasoline in Hawaii. Just a year or two ago, the price of gasoline in Hawaii ranged from $3.00 to $3.50 a gallon, while the price of oil hovered just over $60 a gallon.

The wholesale price of oil has increased by 50-percent in the past year or two, from the $60 a barrel range, to nearly $100 a barrel, but the price of gasoline at the pump remains, more or less, the same.

Something appears to be amiss regarding gasoline prices in Hawaii, despite oil price fluctuations, the gas cap silliness, and a change in petroleum taxes. I found an interesting chart online which highlights the same strange story.

Generally, over the past three years, retail gasoline prices in the US were influenced by the wholesale price of crude oil. When oil prices went up, so did gasoline prices in the US. When oil prices went down, so did gasoline prices.

Until now.

Wholesale prices of oil and retail prices of gasoline bottomed out around January 2007. Oil was less than $60 a barrel, and gasoline was about $2.50 a gallon in the US. Since then, oil prices have climbed from less than $60 a barrel to nearly $100 a barrel. Retail gasoline prices climbed, too, but peaked in the spring, then dropped– all while oil prices hit new records.

If the price of oil continues to rise, as it has since January, why are gasoline prices dropping? For Hawaii’s motorists, prices are not really dropping. They just haven’t gone up.

I can see what the chart says. I know what my calculator shows. Something is strange about gasoline prices.