Since Oct. 4, the price of West Texas Intermediate (WTI) crude oil is up 33%, but the news media has barely given this story a second look. If the price of oil is up that much, presumably the price of gas should be crippling the wallets of consumers. So why haven't we noticed? (For related reading, see Understanding Oil Industry Terminology.)
The reason is because the wholesale price of gasoline on Oct. 4 was $2.61 and two months later on Dec. 2 the average wholesale price had only risen 1 cent to $2.62. We've all learned that when oil rises in price so does the price of gas. So why not this time?

TUTORIAL: Crude Oil

The Tale of Two Oils
There are actually 161 different types of oils traded according to the International Crude Oil Market Handbook, but if you ask an oil investor they will tell you about WTI and Brent Blend crude oil. WTI oil is refined in the Midwest and Gulf Coast area and is the traditional source of the majority of the oil used in the United States. If you want a high quality oil, you want it to be sweet and light and that comes from a low sulfur content and low specific gravity. WTI is lighter and sweeter than Brent Blend crude which makes it higher quality and more expensive in normal market conditions. WTI is the oil that is traded at the New York Mercantile Exchange (NYMEX) making it the traditional benchmark for oil traders around the world. (To learn more, read How Does Crude Oil Affect Gas Prices?)

Brent Blend crude is a more sour oil because of its higher sulfur content. It is actually a mixture of multiple types of oil that come from the North Sea, and when oil markets are acting in a way that is considered normal, Brent Blend crude is largely used in Europe. It doesn't take much to knock the oil market out of balance. Because of changes in the North American oil landscape, European companies are finding it more profitable to export their oil to the United States.

That North American change is a shift in the way oil moves. In the past, oil has moved north from the Gulf Coast, but the recent discoveries in Northern states as well as Canada have sent oil moving south. Cushing, Okla. is where WTI is housed and priced. Because of these new flows, the Wall Street Journal recently called Cushing the "Roach Motel" of oil. Oil can get in but it can't get out. This, along with other geopolitical issues has caused a change in the oil markets; this is a change that is good for the consumer, at least for now.

We Love Brent!
Because of the problems with WTI oil, Brent Blend crude has become the benchmark for gas prices, at least for now. While WTI has seen a 33% increase since Oct. 4, Brent Blend crude has seen a modest 7% increase and because gasoline prices are not strictly correlated to oil prices, this has caused the consumer to see an average price at the pump of $3.29 as of Dec. 2.

The Bottom Line
The oil market is a volatile market. Wars, weather events and broken pipelines are just a few of the many factors that could make what we pay at the pump see a steep increase virtually overnight but for now, consumers are the beneficiaries of this recent changing of the guard in the oil market. (For related reading, see What Determines Gas Prices?)

Related Articles
  1. Economics

    What is a Complement?

    A good or service that’s used in conjunction with another good or service is a complement.
  2. Fundamental Analysis

    4 Predictions for Oil in 2016

    Learn four predictions for oil markets in 2016 including where prices are heading and the key fundamental factors driving the market.
  3. Fundamental Analysis

    Performance Review: Commodities in 2015

    Learn how commodities took a big hit in 2015 with a huge variance in performances. Discover how the major commodities performed over the year.
  4. Stock Analysis

    4 Energy Stocks for Income Seekers in 2016 (COP, CVX)

    Discover four energy companies that could maintain or even increase their dividends in 2016, making them the best investments for income-seeking investors.
  5. Retirement

    Ipsy Review: Is It Worth It?

    Discover the history of ipsy, how much packages cost, options available for membership, major competition and what the future looks like for the company.
  6. Stock Analysis

    The Biggest Risks of Investing in SandRidge Stock

    Learn about the significant risks of investing in SandRidge. Read how the company may not be able to service its substantial debt load.
  7. Fundamental Analysis

    Gloom and Doom for Global Markets in 2016?

    Learn about the volatility in global markets during the beginning of 2016. See why famous investors are saying some economies could see recessions.
  8. Stock Analysis

    The Biggest Risks of Investing in Johnson & Johnson Stock (JNJ)

    Learn the largest risks to investing in Johnson & Johnson through fundamental analysis and other potential risks. Also discover how JNJ compares to its peers.
  9. Budgeting

    Craft Coffee Review: Is It Worth It?

    Learn more about one of the first and most flexible specialty-grade coffee subscription services on the market, a perfect fit for any coffee lover.
  10. Budgeting

    Plated Review, Is It Worth It?

    Take a closer look at the ready-to-cook meal service, Plated, and learn how the company can help you take the hassle out of home cooking.
RELATED FAQS
  1. How does a cost-of-living adjustment (COLA) affect my salary?

    Some companies build salary adjustments into their compensation structures to offset the effects of inflation on their employees. ... Read Full Answer >>
  2. Where can you buy NetSpend reload packs?

    You can only purchase NetSpend reload packs at Giant Eagle, Albertsons, Roundy's and Pathmark supermarkets. NetSpend cards ... Read Full Answer >>
  3. Which mutual funds made money in 2008?

    Out of the 2,800 mutual funds that Morningstar, Inc., the leading provider of independent investment research in North America, ... Read Full Answer >>
  4. Why do some oil refineries get tax exemptions?

    Oil refineries normally receive tax exemptions due to tax loopholes. The extracted fuel exemption, for example, one of the ... Read Full Answer >>
  5. Do hedge funds invest in commodities?

    There are several hedge funds that invest in commodities. Many hedge funds have broad macroeconomic strategies and invest ... Read Full Answer >>
  6. Can mutual funds invest in commodities?

    Mutual funds can invest in commodities. In fact, mutual funds may provide a better way for investors to gain exposure to ... Read Full Answer >>
Hot Definitions
  1. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
  2. Super Bowl Indicator

    An indicator based on the belief that a Super Bowl win for a team from the old AFL (AFC division) foretells a decline in ...
  3. Flight To Quality

    The action of investors moving their capital away from riskier investments to the safest possible investment vehicles. This ...
  4. Discouraged Worker

    A person who is eligible for employment and is able to work, but is currently unemployed and has not attempted to find employment ...
  5. Ponzimonium

    After Bernard Madoff's $65 billion Ponzi scheme was revealed, many new (smaller-scale) Ponzi schemers became exposed. Ponzimonium ...
  6. Quarterly Earnings Report

    A quarterly filing made by public companies to report their performance. Included in earnings reports are items such as net ...
Trading Center