“Oil prices are falling, and so are gas prices,” Biden said on Twitter. “Last time oil was $ 96 a barrel, gas was $ 3.62 a gallon. Now it is $ 4.31. Oil and gas companies should not pay their profits at the expense of hard-working Americans.”
Management’s focus on the nuances of energy prices shows the extent of frustration within the White House, one of the central drivers of high inflation.
‘This seems to take a long time’
This is nothing new. The industry has a nickname for this practice: rockets and feathers.
“This has been going on for 40 years,” Andy Lipo, president of the consulting firm Lipo Oil Associates, told CNN. “Prices are going down, it seems like it’s going to take a long time. You can not deny the data outside.”
Old or new, Biden is not a fan, especially after management noticed this phenomenon last fall when gas prices slowly receded after the release of emergency oil reserves and the Omicron hit.
“Try to explain to President Biden how it’s just rockets and feathers, and you should be prepared to hear ‘it’s a bouquet of flowers’,” a senior White House official told CNN. “If you’ve going to have rockets on the way up, you have to have rockets on the way down, the President has the right to point out that there are no feathers.”
But it may be unreasonable to say that pump prices should change immediately as oil prices change. It takes time for the price to rise to filter through the supply chain.
A gas station owner today can sell fuel purchased when oil prices were high. (This is especially true in today’s highly volatile market.)
“Don’t get me wrong. There will be a slight setback,” Lipov said. “I bought my tanker load yesterday and what if the crude oil runs low in the next two days?”
Tom Closa, global head of energy analysis for the Oil Price Information Service, said petrol stations had no choice but to increase the impact of higher oil prices due to the pressure of their profit margins.
“On the way down further, it’s like‘ we’ll be as patient as we can ’,” Closa said. “They will fall, but at a very slow pace.”
Joe Brussels, chief economist at consulting firm RSM, noted that petrol prices are a function of expectations surrounding past purchases and future supply costs – there is now great uncertainty in the direction of oil prices.
“The criticism of pricing at petrol stations is somewhat misleading,” Brussels said.
$ 1,300 hit homes
Here are the real economic implications.
According to Moody’s Analytics, every 10 percent increase in petrol prices will cost consumers at least $ 11 billion a year.
Gas prices have risen over the past year and a half, last weekend, to $ 1.50 a gallon higher than the 2019 average. According to Moody’s Analytics, if prices were this high, customers would pay $ 165 billion more in 2022 than they did in 2019.
Put it another way: the average annual cost of petrol would increase by about $ 1,300 per American household, Moody’s told CNN.
A senior White House official suggested that gas station owners should not offer savings to consumers as quickly as they can.
“This is a particularly unfair use of pricing power from a consumer perspective,” the official told CNN.
GasBuddy’s Patrick De Haan said earlier this week that if oil prices were below $ 100 a barrel, gas prices would have to accelerate.
‘Random’ link between oil and gas prices
Of course, two years ago the oil industry was in deep trouble. Oil prices fell, US crude turned negative for the first time, and petrol prices fell sharply.
The National Association of Convenience Stores, a trade group representing the fuel retail sector, did not respond to a request for comment.
The U.S. Petroleum Corporation, a trade group representing the oil and gas sector, said in a statement that retail prices in many industries were falling more slowly than rising.
“At gas prices, the American people are looking for solutions, not the index finger,” said Frank Machiarola, senior vice president of policy, economics and regulatory affairs for the API.
There is some academic research that supports the White House argument.
“When oil prices rise after being stable for a while – petrol prices rise quickly,” the central bank said. “Conversely, when oil prices fall after being stable for a while, petrol prices slowly recede.”
Who owns the gas?
Although gas stations are often engraved 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 licensed to represent that home brand.
At the end of the day, people who can wait before buying gas will benefit, Closa said.
“If you stop for five days to fill your tank, you get a lower price,” Closa said.
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