What would be the effect on gasoline price if the price of oil decreased by 10%?

Marketing Dec 21, 2020

Expert Solution

We all know that gasoline is obtained by refining crude oil, along with gasoline other products such as diesel, kerosene, paraffin, heavy fuel oil and liquefied petroleum gases are also obtained from crude oil.

The price of gasoline depends on the price of crude oil plus other costs are also added to it such as refining costs, distribution and marketing costs and federal and state taxes. The price we pay for gasoline includes all these costs.

So, if the price of crude oil is decreased by 10%, then the price of gasoline would surely decrease but not exactly by 10% because of other costs involved.

If we assume that the component of price of crude oil is around 55% to 65% in the price of gasoline, then the price of gasoline would fall by 5.5% to 6.5%.

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