Biden Slams the “Rockets & Feathers” Tendency of Gas Prices

In News
Gas prices

Oil prices are falling, and gas prices should follow suit. As President Joe Biden points out, it is not unusual for gas prices to soar like a rocket when crude prices skyrocket then fall like a feather when crude prices fall.

In Summary

  • The nationwide average price of regular gasoline fell a cent to $4.31 per gallon on Wednesday, down from $4.32 on Tuesday.
  • A ten-cent increase in the price of gasoline would cost consumers at least $11 billion each year.
  • Gas stations are usually emblazoned with a major oil company’s logo, such as Exxon or Shell.
  • According to the American Petroleum Institute (API), customers want solutions, not finger-pointing.
Gas prices
Gas station in remote Alaska [COURTESY]

President Biden has called for a more swift decline in oil prices as the price of crude oil falls.

President Joe Biden is using his power of suggestion to draw attention to the fact that gas prices shoot like a rocket when crude oil prices rise, but fall like a feather when crude prices fall.

Biden sent a tweet Wednesday morning noting the agonizingly slow decline in gasoline costs in an effort to draw attention to a decades-long trend that opponents argue harms consumers by failing to pass on savings to drivers.

“Gas prices should decline in lockstep with oil prices,” Biden tweeted. “At a price of $96 per barrel, a gallon of gasoline cost $3.62. It is now $4.31. Oil and gas companies should refrain from exploiting hardworking Americans in order to increase their profits.”

The administration’s fixation with the details of energy prices reveals the White House’s level of frustration with one of the primary contributors of rising inflation.

Last week, gas prices reached new highs, after a surge in crude oil to levels not seen since 2008.

Gas prices are reducing relatively slowly at the current levels. According to AAA, the national average price regular gasoline declined to $4.31 per gallon on Wednesday. Tuesday’s pricing was a cent lower, and Monday’s price was two pence lower.

Despite the drop in oil prices, it appears as though gas is taking an eternity to catch up.

This is not a new element. The market has even coined a tagline to describe this practice: Rockets and feathers.

“This has been going on for 40 years,” according to Andy Lipow, head of consulting firm Lipow Oil Associates. “Price declines take a long period, but they finally occur. Contrary to popular belief, facts cannot be disputed.”

Biden is not a fan of either, particularly after perceiving this phenomenon last fall, when gas prices gradually declined following the administration’s release of emergency oil reserves and the Omicron incident.

“Try explaining to President Biden that it’s all rockets and feathers, and you’d better be prepared to hear, ‘That’s a bunch of malarkey,'” a senior White House official remarked. If you want rockets to fly upward, you also need rockets to fall, and the president is entirely justified in stating that,” one observer notes.

However, changing pump pricing immediately in response to changes in oil prices may be absurd. Price fluctuations take time to filter through the supply chain.

A gas station owner may be selling fuel that was purchased at a period when oil prices were much higher than they are now. (This is particularly true in today’s wildly unpredictable market.)

“Let me be clear: While some lag is unavoidable, “Lipow stated. What should I do if the price of crude oil declines after I purchase my truckload today?

According to Tom Kloza, worldwide head of energy analysis at the Oil Price Information Service, gas stations are facing increased pressure on their profit margins as a result of higher oil prices.

“And on the way down, it’s like, ‘We’re going to be as patient as possible,'” Kloza added. “They will fall, but at a somewhat slower rate.”

According to Joe Brusuelas, chief economist at consulting firm RSM, there is considerable uncertainty about the future of oil prices at the moment. Brusuelas emphasized that gasoline prices are determined by past purchases and projections about future delivery costs.

As Bruseulas put it, “criticism of gasoline station pricing setting is largely wrong.

The real economic effects impact households

According to Moody’s Analytics, each ten-cent increase in the price of gasoline costs customers at least $11 billion over the course of a year.

Gas prices have risen steadily over the last year and a half, and as of last week, were approximately $1.50 per gallon higher than the 2019 average. Moody’s Analytics estimates that if prices continue to rise at this rate, consumers will spend $165 billion more in 2022 than they did in 2019.

In other words, annual average gasoline spending would increase by about $1,300 per US household, according to Moody’s.

According to a senior White House official, gas station operators are not passing along savings quickly enough to consumers.

“This is an example of abusing price power in a way that is not particularly fair to the consumer,” the official remarked.

GasBuddy’s Patrick De Haan stated earlier this week that if oil remains below $100 per barrel, the decrease in gas prices should accelerate.

Stations will begin passing on savings to customers as margins improve, according to a tweet from De Haan.

Gas prices
Tom Klonza [COURTESY]

It would appear that oil and gas prices have a “lopsided” relationship.

Of all, only two years ago, the oil industry was in shambles. Oil prices dropped, with US crude falling negative for the first time in history, significantly lowering gasoline prices.

The National Association of Convenience Stores, a trade association representing the fuel retailing industry, acknowledged Wednesday in a blog post that merchants may not immediately lower prices in response to an oil rally “to make up for the margins lost during the price increase.”

Because retailers have no idea where wholesale prices are headed, an increase in wholesale pricing or a squeeze on margins cannot be ruled out. As a result, they attempt to swiftly make up for lost margins.

Additionally, the industry association noted that one exacerbating factor is that the fuels business is currently undergoing its annual government-mandated transition to summer-blend fuels.

According to the NACS, “retailers desire lower gasoline costs just as much as their customers do. “When prices are low, consumers have more money to spend in stores. They are also more productive as a result of their improved well-being.”

The American Petroleum Institute, a trade association representing the oil and gas industry, stated in a statement that retail prices decline more slowly than they rise in many industries.

According to Frank Macchiarola, senior vice president of policy, economics, and regulatory affairs at API, “the American people are looking for solutions, not finger pointing” in response to rising gas costs.

There is some scholarly research that bolsters the White House’s position.

In 2014, the Federal Reserve Bank of St. Louis published a paper stating that there is a “uneven” relationship between oil prices and gas prices. That report was based on a review of academic research on the so-called pass-through of oil and gasoline.

“When oil prices increase after a period of stability, gasoline prices climb rapidly,” the Fed report noted. “By contrast, when oil prices begin to decrease after a period of stability, gasoline prices gradually decline.”

Gas prices
Joe Bruseulas [COURTESY]

Who holds the gas?

Prior to Biden’s declaration, House Democrats sent a letter to congressional leaders last week urging them to investigate “alleged price gouging in the oil and gas business” and schedule hearings immediately.

Democrats also proposed a Big Oil Windfall Profits Tax, which would attempt to “curb” oil firms’ profits.

While they may have the logo of a large oil firm such as Exxon or Shell, many gas stations are really owned and operated by local shopkeepers. The proprietors of gas stations are permitted to represent that household brand.

Despite the fact that there are thousands of Exxon and Mobil gas stations throughout the country, ExxonMobil (XOM) maintains that it does not own or operate retail gas stations in the United States. Exxon estimates identifying about 11,000 distribution locations in the United States by 2020.

According to the American Petroleum Institute, oil refiners own less than 5% of the nation’s 150,000 retail gasoline stations. Many gas stations are privately owned by individuals or families, while others are controlled by a corporate entity that owns hundreds.

Finally, Kloza feels that individuals who can afford to wait on gas purchases will benefit.

“If you can wait five days to fill up your tank,” Kloza observed, “you will receive a better deal.”

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