“Oil prices are falling, gas prices should be too,” 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 lose their profits at the expense of hardworking Americans.”
The administration’s focus on the intricacies of energy prices reflects the level of despair inside the White House, with inflation being one of the central drivers of inflation.
‘Looks like it takes a long time’
This is not a new thing. The industry even has a nickname for this practice: rockets and wings.
“This has been going on for 40 years,” Andy Lipo, president of consulting firm Lipo Oil Associates, told CNN. “Prices fall, it seems like it takes a long time. You can’t deny the data out there.”
Old or new, Biden isn’t a fan, especially after watching the event last fall when gas prices slowly retreated after the administration issued emergency oil reserves and Omicron hits.
A senior White House official told CNN, “Try to explain how it’s just rockets and wings for President Biden, and you’ll be ready to hear, ‘This is a bunch of Malarkeys. “The president is pretty much within his authority to indicate that if you’re going to have rockets in the way, you need to put the rocket down, not the wing.”
But it may be unfair to say that like oil prices, pump prices should change immediately. Filtering price fluctuations through the supply chain takes time.
A gas station owner today would be selling fuel that was bought a few days ago when oil prices were very high. (This is especially true in today’s extremely volatile market.)
“Don’t get me wrong. There will be some lag,” said Lipo. “What if I were the guy who just bought my tanker load yesterday and spilled crude over the next two days?”
Tom Kloza, global head of energy analysis at Oil Price Information Service, said gas stations have no choice but to pass on the impact of higher oil prices because of the pressure on their profit margins.
“And at the same time, it’s like, ‘We’re going to be as patient as we can,'” Kloza said. “They will fall, but very slowly.”
Gasoline prices are a function of past purchases and expectations around future delivery costs — and there’s a lot of uncertainty right now about the direction of oil prices, said Joe Brusuelas, chief economist at consulting firm RSM.
“The criticism of pricing at gasoline stations is somewhat misleading,” said Brusulus.
$1,300 loss to families
There are real economic consequences here.
According to Moody’s Analytics, every 10 percent increase in the price of gasoline causes consumers to lose at least $11 billion 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 above the 2019 average. According to Moody’s Analytics, if prices stay that high, consumers will pay $165 billion more during 2022 than in 2019.
Put another way: Moody’s told CNN that the annual average spending on gasoline would reach about $1,300 per American household.
The senior White House official suggested that gas station owners are not passing the savings to consumers as quickly as possible.
“It’s using price power in a way that isn’t particularly fair from a consumer standpoint,” the official told CNN.
GasBuddy’s Patrick De Haan said earlier this week that the fall in gas prices should accelerate if oil stays below $100 a barrel.
The ‘unequal’ link between oil and gas prices
Of course, just two years ago the oil industry was in deep trouble. Oil prices fell, US crude turned negative for the first time, causing gasoline prices to drop dramatically.
The National Association of Convenience Stores, a trade group that represents the fuel retail industry, did not respond to a request for comment.
There is some academic research that supports the White House argument.
“When oil prices rise after remaining stable for some time – gasoline prices rise sharply,” the Fed paper said. “Conversely, when oil prices fall after remaining stable for some time, gasoline prices gradually retreat.”
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 retailers. Gas station owners are given a license to represent that domestic brand.
At the end of the day, Kloza said those who can wait before buying gas will benefit.
“If you can hold off five days to fill your tank, you’ll get a lower price,” Kloza said.