VERIFY: Do oil prices always determine the cost of gas?

Do oil prices always determine the price of gas? KHOU 11 News reporter Stephanie Whitfield set out to verify.

HOUSTON - Gas prices are projected to be the lowest they’ve been on July 4 since 2005, according to GasBuddy.

Experts say the reason for the cheap prices is crude oil’s price decline due to oversupply.

But does it always work that way? Do oil prices always determine the cost of gas at the pump?

The KHOU 11 News Verify Team found the answer is yes: the price of oil does directly impact gas prices, but it requires some context.

It may take time for fluctuations to appear at the local level. There are also some outside factors that can move prices up or down at the pump.

To understand how prices are set, you have to understand the process.

First, the price of crude oil is based on supply and demand in the world. Once the price per barrel is settled on with a buyer and seller, it goes to a refinery to be processed. Only then is it sold to a gas station where they set their price and add tax.

When the price of oil goes up or down, gas stations can change their prices in as quickly as a couple hours. However, fast fluctuations tend to happen when there is a big spike or drop. It usually takes a couple days, or even a couple weeks, for gas to be fully priced.

Other factors, beside crude oil prices, also impact prices at the pump.

Those factors include local supply and demand, a gas station’s location, significant weather events that impact refineries and regulations that can make processing oil more expensive.

Overall, gas prices in Texas tend to beat out national averages.

Experts say it’s because of Texas’ proximity to oil production in west Texas and refineries along the Gulf of Mexico. In addition, Texas has lower gas taxes than other states.

VERIFY: Sources

Patrick DeHaan, senior petroleum analyst for GasBuddy
Ed Hirs, energy economist with the University of Houston

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© 2017 KHOU-TV


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