(CNN Business) President Joe Biden is using his bully pulpit to call out the tendency for gasoline prices to go up like a rocket when oil spikes, but only drop like a feather when crude crashes.
Biden fired off a tweet Wednesday morning highlighting the painfully slow decline in gasoline prices in a bid to draw scrutiny to a decades-long trend that critics say hurts consumers by failing to pass savings along to drivers.
“Oil prices are decreasing, gas prices should 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 pad their profits at the expense of hardworking Americans.”
The administration’s focus on the intricacies of energy prices shows the level of frustration inside the White House with one of the central drivers of high inflation.
Gas prices skyrocketed to record highs last week, following a spike in crude oil to levels unseen since 2008.
Prices at the gas pump are going down — but only very gradually. The national average for regular gas dipped to $4.31 a gallon on Wednesday, according to AAA. That’s down a penny from Tuesday and two pennies from Monday.
That’s despite the fact that Brent oil collapsed by 28 per cent between the March 6 intraday peak and Tuesday’s close.
‘IT JUST SEEMS TO TAKE A LONG TIME’
This is nothing new. The industry even 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 do dip, it just seems to take a long time. You can’t deny the data that is out there.”
Old or new, Biden isn’t a fan, especially after observing this phenomenon last fall when gas prices retreated slowly after the administration released emergency oil reserves and Omicron hit.
“Try explaining how it’s just rockets and feathers to President Biden, and you’d better be ready to hear, ‘That’s a bunch of malarkeys’ coming back at you,” a senior White House official told CNN. “The president is very much within his rights to point out that if you’re going to have rockets on the way up, you need to have rockets on the way down, not feathers.”
But it may be unreasonable to say pump prices should change instantly just because oil prices do. It takes time for price swings to filter through the supply chain.
A gas station owner may be selling fuel today that was purchased days earlier when oil prices were much higher. (That’s especially true in today’s extremely volatile market.)
“Don’t get me wrong. There would be some lag,” Lipow said. “What if I was the guy who just bought my tanker load yesterday and the next two days crude oil dropped?”
Tom Kloza, global head of energy analysis at the Oil Price Information Service, said gas stations have little choice but to pass along the impact of higher oil prices on the way up because of the pressure on their profit margins.
“And on the way down, it’s like, ‘We’ll be as patient as we can,'” Kloza said. “They will fall, but at a much slower pace.”
Joe Brusuelas, chief economist at consulting firm RSM, noted that gasoline prices are a function of past purchases and expectations around the cost of future deliveries — and there is vast uncertainty right now about the direction of oil prices.
“Criticism of price setting at gasoline stations is somewhat misguided,” Bruseulas said.
$1,300 HIT TO HOUSEHOLDS
There are real economic consequences here.
Every 10-cent increase in the price of gasoline costs consumers at least $11 billion over the course of a year, according to Moody’s Analytics.
Gas prices have surged over the past year and a half, and at the end of last week, they stood about $1.50 a gallon higher than the 2019 average. If prices stay this high, consumers will pay $165 billion more over the course of 2022 than they did in 2019, according to Moody’s Analytics.
Put another way: Annual average spending on gasoline would climb by roughly $1,300 per US household, Moody’s told CNN.
The senior White House official suggested gas station owners are not passing along savings to consumers as quickly as they could.
“This is using price power in a way that is not particularly fair from the perspective of the consumer,” the official told CNN.
GasBuddy’s Patrick De Haan said earlier this week the gas price drop should accelerate if oil stays below $100 a barrel.
“Stations lost their shirt on the way up, but now margins are improving and they will start passing the discounts on to you,” De Haan wrote on Twitter.