Gas and Oil

I had a discussion with someone about this a few weeks ago. They were arguing that "big oil" was skimming off the consumer because when oil rose, the price of gas rose, but when oil fell, the price of gas wasn't.

Here's the problem, and thus the falacy. The U.S. news media (financial media as well as main stream) quote the price of oil based on West Texas Intermediate Crude (WTI). However, less than 20% of U.S. refiners and distributors have product based off WTI. Rather, most of the world, and much of the U.S. receive product based off Brent Crude. There has been a large divergence of Brent and WTI over the last two years (+/-) that is related specifically to an oversupply of product in a place called Cushing, OK. Financial contracts on WTI oil are settled in oil located at these storage facilities. Becuase there has been too much supply at these local storage facilities in Oklahoma, "the price of oil" has declined. However, Brent hasn't seen the same decline. New world demand for oil has outpaced supply, and thus Brent prices are not down nearly as much.

If you look at the following graph, note how NY gas prices have moved lock step with Brent Crude prices over the past year, whereas WTI has declined significantly.