Oil Prices Fall, Gas Prices Rise

Here we go again. The petroleum market appears to be completely out of sync, as oil prices are falling and retail gasoline prices, after going down for seven weeks, are rising again.

The national average price of self-serve regular today is $3.631 a gallon, up six and a half cents in the last week and up nearly four cents since Friday, according to AAA. The price of crude oil, meanwhile, is down nearly two percent on new concerns about the prospects for global economic growth.

The disconnect is between the retail market, where consumers purchase fuel, and the futures market where wholesalers refiners, and yes, speculators, purchase contracts to buy oil in the next few weeks. When the economic outlook is uncertain, or conventional wisdom turns on a dime, the futures market can be volatile.

The retail market is mostly based on what the individual gas stations had to pay for the gasoline. A gas station might boost prices by five cents a gallon or more in a single day if it has taken delivery of more expensive gasoline that day.

Trying to predict the future

Though it doesn't get as much press coverage as the oil futures market, there is also a futures market in gasoline, and it is interesting to see what is happening there. In today's trading, gasoline futures followed oil lower.

Gasoline for delivery in August fell nearly three and a half cents in early morning trading on the New York Mercantile Exchange. That means next month, wholesalers will take delivery of gasoline that costs less than it does right now. Presumably, the recent retail price hikes should retreat next month, when this cheaper gas enters the distribution pipeline.

But only if this present market trend continues for a few days. Today, investors are worried about European debt and the outlook for economic growth around the world. Those fears deepened Friday when the U.S. reported shockingly weak job growth for June.

But what happens if this week we were to get all sorts of good economic news, and data that suggested the economy was about to come roaring back? Most likely, both oil and gasoline futures would surge higher, meaning more expensive gasoline would enter the system next month.

For consumers, it a reason for confusion and perhaps a little cynicism. The cost of a fill-up seems to fluctuate with little rhyme or reason. They only know that the cost of gasoline was once a lot more stable than it is now.