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Keeping It Simple

Why Are Fuel Prices 'Grinchy'?

Editor's note:

You just KNOW it's going to happen -- you're going to be at a holiday gathering, and once word gets out that you are involved in the PETROLEUM industry, you're going to hear a lot of opinions from a lot of people about a lot of things that are wrong with your chosen profession.

And probably get a lot of questions.

But before you scream in frustration -- "Bah, humbug!" works well this month -- maybe we can empower you with information that can help you win at least a moment or two.

Memorize, then be ready to share. There's a world that's waiting to hear this information, and you may be their best chance to hear it correctly.

For December, another simple answer to another frequently asked question about the petroleum industry.

Why do oil companies raise the price of gasoline right before a holiday?

Short answer: It's supply and demand.

"The oil industry does not raise prices. The marketplace raises prices. As demand exceeds supply, prices always rise," said Dan Gilligan, president of the Petroleum Marketers Association of America.

Okay, you'd expect him to say that. Look at it this way. People tend to buy and use more gasoline during a holiday. Gasoline retailers know this.

The rule for petrol stations is: You don't want to run out of gasoline. So gasoline retailers stock up on petrol before holidays. With retailers clamoring for supply, the price shoots up.

Retailers know that consumers will demand more gasoline over the holiday period, which increases the price at the pump. When demand falls, the price goes back down.

Increases before the summer holidays also result from higher seasonal demand. According to the Energy Information Administration, summer gasoline demand averages about 6 percent higher than the rest of the year.


How much gasoline comes from a barrel of crude oil?

Short answer: It depends.

A barrel of oil equals 42 U.S. gallons of oil. For reasons too strange and complicated to get into, a 42-gallon barrel of oil can yield slightly more than 44 gallons of product.

Then you can tune the refining process to get more of some products and less of others.

That's the windup, here's the pitch:

According to the U.S. Department of Energy, refiners on average can produce between 19 and 20 gallons of gasoline from a barrel of oil.


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