Americans need to stand up and start complaining about the high price of gas these days.  “But, the price is dropping these days, right?  Why complain?”  Well, let’s look at the math:

Let me preface by saying that there are some basic assumption made here.  I am not an economist!  But when gasoline was at its highest in my area, it was $4.10/gallon.  That was in July, when crude oil was selling for record highs of around $147/barrel.  Fast forward to present.  On Friday, a barrel of oil was at its lowest price since September 2007, coming in at around $77.70/barrel.  52.8% lower Friday than it was at it’s highest 3 months ago!  But are we seeing that reflected at the pump?

If 100% of the price at the pump was related to crude oil prices, you could say that if $147/barrel equates to $4.10/gallon, then $77.70/barrel equates to… $2.16/gallon.

Now, roughly 72% of the price of gasoline is crude oil prices.  So the 100% comparison is not quite fair, but the result would be the lowest end of the spectrum, presuming a linear relationship.  At the other end of the spectrum, let’s say the other 28% (taxes, distribution, marketing and refining) was fixed.  So we’ll subtract it from the $4.10/gallon, do the calculation again, and add it back to the result.  72% of $4.10 is $2.95 ($1.15 is presumed fixed, then).  If $147/barrel equates to $2.95/gallon, then $77.70/barrel equates to $1.56/gallon.  Add back $1.15 presumed fixed and you get… $2.71/gallon.

So gas should be somewhere between a low of $2.16/gallon and a high of $2.71/gallon.  Who knows were in that range it should be, but let’s pick the middle of the two numbers, or $2.44/gallon.  And what was the price here this weekend?  $2.99/gallon.

Now, refining oil into gas is not instantaneous, but that doesn’t stop them from jumping prices up at the pump the moment that oil prices go up.  In fact, today oil went up $3.49/barrel over last Friday.  So my price at the pump will continue to fall to $2.44/gallon, reflecting the drop in crude oil, before going up again slightly, because of today’s rise? 

Not likely.  Why?  As pointed out in an excellent article on The Consumerist:

Despite popular misconceptions, price gouging almost never occurs as prices rise. Instead, price gouging occurs when dealers keep prices artificially high in order to gain a little extra profit or recoup costs, even though the DTW (dealer tank wagon) price has declined.

So while American’s are “happy” that the price of a gallon of gas has dropped to “only” $2.99/gallon, in reality it should be lower still, and we’ll never see it.  So as I said at the beginning, Americans need to stand up and start complaining about the high price of gas these days.