Authored by Robert Rapier via OilPrice.com,
Gasoline prices can diverge sharply from crude oil prices due to refining and logistical constraints.
Tight refinery capacity and geopolitical disruptions have created bottlenecks throughout the fuel supply chain.
Policies that discourage energy infrastructure investment could worsen future fuel price volatility.
When lawmakers propose solutions to complex economic problems, the first requirement should be a clear understanding of how those problems actually work.
A recent Facebook post by Bernie Sanders comparing today’s oil and gasoline prices to those in 2011 suggests that oil companies are “ripping off” consumers.
The logic is straightforward: if oil prices are roughly the same, gasoline prices should be as well. If they aren’t, someone must be taking advantage.
It’s an intuitive argument, but it misses important elements of the story.
Although gasoline prices have a high degree of correlation with crude oil prices, there are many reasons those prices can diverge. Gasoline is a manufactured product that sits at the end of a long, complex, and often strained supply chain. Focusing only on the price of a barrel of oil ignores the physical realities that determine what consumers ultimately pay at the pump.
The price of crude oil is only the starting point. Between the wellhead and the gas station lies a network of refineries, pipelines, storage terminals, and transportation systems.
Source: ZeroHedge News
