Question

Gasoline "prices at the pump" go up and down and Oil "costs per barrel" go up or down, but they do so at different rates and even in opposite directions sometimes. We want to think that demand and supply controls prices where the cost of crude oil is set by the same economic conditions that determine the price of gas. What are these mismatched trends (graphs of each are shown in the following web links) telling us about how demand and supply work in the market? http://www.eia.gov/dnav/pet

Answer 1

Discrepancies in oil prices and price paid by consumers can have several reasons:

· Oil prices are never considered as a result of demand and supply.

· Speculators’ role in financial services estimates 60 – 80% of oil barrel price.

· Financial machinations of people betting on oil prices have no other role in petroleum sector is an important force in setting prices of demand.

· There is follow – up of gasoline and oil prices because of financial wagers.

· Difference in gas and oil prices exists because of taxation rates that gasoline costs.