I understand the concept of lag effect, but this seems a little extreme. Does it seem that when the price of oil goes up, gas prices go up immediately? And when oil prices fall, gas prices don’t fall as rapidly? Your feeling is confirmed by the facts. We’ve had quite a roller coaster ride of oil and gas prices this year.
The first chart shows gas prices bottoming around April 1 at $2.38 per gallon. Oil prices were at $48 per barrel. Oil reached $61 per barrel on June 24. That was a 27% increase in less than three months. Gasoline prices rose to $2.80 by June 24. That 17% rise tracked the oil price rise almost to the penny when you take the gasoline taxes out of the equation. The oil companies did not eat any of the price increase in oil. They passed it along to you immediately.
It’s been a different story on the way down. Oil has fallen from $61 per barrel on June 24 to $44.50 today. That happens to be a 27% decrease in about six weeks. Meanwhile, the price of gasoline has only drifted down to $2.63, a miniscule 6% drop. Why hasn’t it dropped 18%? It went up 18% when oil rose by 27%. It seems the oil companies aren’t quite as flexible when prices are dropping. They have executive bonuses to pay themselves. They are so busy firing thousands of employees, they haven’t had time to reduce prices at the pump. The screwing will continue until morale improves.
