Comment on Gas Prices

I just wanted to make a quick comment on what Matty Baby said about gas and oil prices.  I Put together the following charts with the components of the average gas prices by percentage and the US average gas price in dollars.

As can be seen here, the crude oil price is a large part of what you pay but not all.  As it goes up it is actually increasing the percentage it represents which would tend to give it more of a correlated movement with the price.  Further, look at the green line.  This is your tax portion.  These tend to be fixed at X amount of cents per gallon.  This means as the price goes up, the tax rate makes up smaller percentage, naturally the opposite occurs as well.  So the more you see the price drop the slower the price will begin to come down as a response of continued crude prices dropping.  This brings me to the final point that can be deduced logically.  As we must be careful to confuse correlation with causality, of the components of gas prices that do have a causal relationship on a day to day or a week to week basis Crude has the most influence(taxes are not changing by the minute like crude's price).  Further the relationship you note is perfectly consistent with what is shown above.  As prices come down, the influence of crude weakens and the fixed tax per gallon, since it is NOT a rate, is now a larger piece of the price pie.  The opposite holds true on the rise of crude as the fixed tax  makes up a gradually smaller slice and crude increases its share of what you wind up paying at the pump.

Let me take this to the extreme for sake of making what I am saying more clear.  Look at the following chart of the USA and the different state's tax on gas.  There is on top of the state fixed tax a federal government fixed tax.  Here is the chart:

        http://www.api.org/statistics/fueltaxes/upload/GASOLINE_TAX_MAP_JAN2010.pdf

Let us pretend a new great source of crude oil is discovered with enough to supply earth for another million years.  Cēterīs paribus we can safely say the price of oil would diminish to almost nothing.  But do you think the government in California will completely get rid of their heavy tax which when combined with the Feds tax is $0.65 a gallon.  Doubtful indeed.  So under these circumstances you could have gasoline that could not fall below this threshold (we do not even mention refining and marketing costs here, as the point stands without doing so).  So before people blame big oil look at the government.  I remember 85 Cent gas not too long ago in NJ.  In California they are approaching that just with taxes.  And remember these are fixed amounts per gallon.  Not a fixed rate per dollar.  This is why as it is approached the slowdown in rate of decreased gas prices as compared with crude becomes more visible.

Of course this is a simplified explanation and the and I will not go into depth beyond this simple explanation right now. Further, it is late so I am sure I have a few errors in there I don't feel like checking now, so feel free to let me know where I err.