“Oil prices are falling, so should gas prices,” Biden said on Twitter. “Last time oil was $ 96 a barrel, gas was $ 3.62 a gallon. Now it’s $ 4.31. Oil and gas companies shouldn’t increase their profits at the expense of hard-working Americans. “.
The administration’s focus on the complexity of energy prices shows the level of frustration within the White House at one of the central drivers of high inflation.
“It seems to take a long time”
This is nothing new. The industry also has a nickname for this practice: rockets and feathers.
“This has been going on for 40 years,” Andy Lipow, president of consulting firm Lipow Oil Associates, told CNN. “Prices are going down, it looks like it takes a long time. You can’t deny the data that’s out there.”
Old or new, Biden is no fan, especially after observing this phenomenon last fall, when gas prices slowly declined after the administration released emergency oil reserves and Omicron struck.
“Try explaining what rockets and feathers are like to President Biden, and you’d better be ready to hear, ‘This is a bunch of malarkeys’ coming back on you,” a senior White House official told CNN. “The president is fully in his right to point out that if you have rockets going up, you have to have rockets going down, not feathers.”
But it might be unreasonable to say that pump prices should change instantly just because oil prices do. It takes time for price swings to seep through the supply chain.
A gas station owner could sell fuel purchased days ago today when oil prices were much higher. (This is especially true in today’s extremely volatile market.)
“Don’t get me wrong. There would be some delay,” Lipow said. “What if I’m the guy who just bought my tanker load yesterday and the crude oil dropped in the next couple of days?”
Tom Kloza, global head of energy analysis at the Oil Price Information Service, said gas stations have no choice but to convey the impact of rising oil prices on the climb due to pressure on their profit margins. .
“And on the way down, it’s like, ‘We’ll be as patient as possible,'” Kloza said. “They will fall, but at a much slower rate.”
Joe Brusuelas, chief economist at consulting firm RSM, noted that gasoline prices are a function of past purchases and expectations about the cost of future deliveries – and right now there is great uncertainty about the direction of oil prices. .
“The criticism of gas station pricing is somewhat misleading,” Bruseulas said.
$ 1,300 hit to families
There are real economic consequences here.
According to Moody’s Analytics, every 10 cent increase in the price of gasoline costs consumers at least $ 11 billion over the course of a year.
Gas prices have risen over the past year and a half and at the end of last week they were about $ 1.50 a gallon higher than the 2019 average. If prices stay that high, consumers will pay $ 165 billion more. in 2022 compared to 2019, according to Moody’s Analytics.
In other words: Average annual gasoline spending would increase by about $ 1,300 per US household, Moody’s told CNN.
The senior White House official suggested that gas station owners are not passing the savings on to consumers as quickly as possible.
“This is using pricing power in a way that isn’t particularly fair from a consumer perspective,” the official told CNN.
GasBuddy’s Patrick De Haan said earlier this week that the drop in gas prices should accelerate if oil stays below $ 100 a barrel.
“Unequal” link between oil and gas prices
Of course, the oil industry was in deep crisis just two years ago. Oil prices plummeted, with US crude turning negative for the first time ever, causing gasoline prices to drop dramatically.
The National Association of Convenience Stores, a trading group representing the fuel retail sector, did not respond to a request for comment.
“Replacement costs based on current market prices tend to drive up daily prices, but it often takes longer for competition between retail stations to reduce them,” the API said in the post.
There is some academic research that supports the White House argument.
“When oil prices rise after being stable for some time, gasoline prices go up rapidly,” the Fed newspaper said. “Conversely, when oil prices fall after being stable for a while. ‘of time, gasoline prices are slowly falling “.
Who owns the gas?
Although gas stations are often decorated with the logo of a major oil producer such as Exxon or Shell, they are often owned and operated by independent dealers. Gas station owners are allowed to represent that domestic brand.
At the end of the day, Kloza said people who can wait before buying gas will benefit.
“If you can hold five days to refill the tank, you will get a lower price,” Kloza said.