Reformulated Blendstock Tells a Piece of a Larger Story for Gas and Oil Prices

Oil and energy investors are seeing a rather bizarre thing happen in a space they have found to be quite comfortable for some time. Oil and energy is a rather consistent and reliable investment, and this still remains true. But, something odd is happening. Gas prices are outgunning oil prices. Oil prices are fixedly lower than gas, and this does not seem to be reversing any time soon.

This has happened in 2011 and it seems to be happening again. The trend seems cyclical, but could there be more to the story? These two things seem to be disconnected for the first time in half a decade.

On average and based on overarching metrics, a $1 increase in the price of a barrel of oil is reflected with a 2.5 cent increase for a gallon of gas. This is a clear connection that can be explored in detail. But, it leaves out one other piece to the puzzle.

Reformulated Blendstock for Oxygenate Blending is another component of gas and oil prices, and it has not remained fixed. The addition of this blendstock actually determines the cost of the oil and gas prices. The blendstock may have a greater impact on the price of oil. So, a large dip or rise in blendstock will hamper the price of oil without necessarily directly impacting gas.

This is a relatively temporary manner. The cost of blendstock will level out eventually. It is the standard for gasoline in new York trading, so the Reformulated Blendstock number creates the foundation for stock valuations of gas and oil. But, these things are tangential. The rates of blendstock will eventually peeter out and level comparable to how much gas and oil costs. But, the immediate deviation may help create that disconnect between the price of a barrel of oil and the price of a gallon of gas.

Does blendstock tell the whole story? Readers can go to my blog to discover more about the current prices of oil and gas, and to discover the deep reasons why prices waver and how investors can take advantage of these discrepancies.