Oil analysts predict that if the price of oil falls by half, the consumer's purchase price for gasoline made from thi...

JackM on February 28, 2023

I don't understand either, the prices of the taxes and other costs wouldn't necessarily go up, but if the price of oil got cut in have from say $4 to $2, the other factors (tax and other costs) wouldn't make the price stay the same, it would still fluctuate.

Emil-Kunkin on March 1, 2023

Oil is an input to gas, you make gas out of crude oil. The author thinks that if the price of oil falls by half then the price of gas will fall by half. However, there is a major flaw in this thinking. Crude is not the only input. You have to refine the crude into gas, transport the gas to gas stations, and pay for marketing and other costs. Let's imagine that these other costs are half of what you pay at the pump. In this case, if the price of oil falls 2 dollars, the price of gas would only fall 1 dollar assuming to other change.

E directly attacks this flaw by showing that the price of gas is not only dependent on the price of oil.