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Gasoline should drop 50 cents per gallon over the next week or two

The price of oil is down but the price of gasoline isn't. What's going on? Here's an update of my chart from last week comparing oil and gasoline prices:

This uses the same formula as before to regress the price of oil on gasoline,¹ and last week it suggested the price of gasoline was about where it should be. This week, however, gripes about the price of gasoline look more justified. Last week gasoline was only about ten cents above its expected price; this week it's 50 cents higher.

The price of gasoline has dropped 13 cents in the past week, but the regression formula says it should have dropped 50-60 cents. Most likely this is just a timing issue: the price of oil has dropped so fast that it hasn't worked its way through to retail gasoline stations yet. But it will, and if my formula is correct we should see the price of gasoline drop by 40-50 cents within the next couple of weeks.

¹The formula is Gasoline = $1.10 + (Oil ÷ 38). Real prices are used for both oil and gasoline.

10 thoughts on “Gasoline should drop 50 cents per gallon over the next week or two

  1. Zephyr

    Where I live gas dropped 10 cents a gallon during the week, but our price drops often lag what I read or hear on the news about the state average. Of course I also wonder where this "average" is seen, since just about every place I buy gas, even when I drive across the state, is higher than the reported number. In any case, my point is that the average consumer reacts to what he or she sees at their gas pumps, no matter what is happening nationally. Anecdotally, most people feel that gas is fast to rise in price and slow to decrease in price. For example, when the Ukraine war started our gas shot up in increments of 10 or 20 cents a day for about a week. I've never seen it drop by more than 10 cents in a week.

    1. Ken Rhodes

      I’m sure you’re correct about the lag. Retail prices in general tend to be stickier when dropping than when rising, and petro fuels are an exemplar of that attribute.

  2. D_Ohrk_E1

    Gasoline refiners switch to summer (re)formulation on May 1, which adds a ballpark cost of $0.15/gal.

    With almost all areas having ditched mask and vaccination restrictions, I think demand will outpace supply. I don't think prices are going to come down that much through the first half of summer.

    People love to complain about gasoline prices but they'll endure it to go to Disneyland and pay $134 per person in the middle of summer. ¯\_(ツ)_/¯

  3. ruralhobo

    Brand me suspicious but I think companies pass on priice hikes fast and price drops slowly, when at least they’re alliowed to.

  4. Justin

    “To reduce inflation — and this is the part that’s rarely said aloud — we must reduce demand. That means forcing Americans to spend less. Which in turn leads to fewer jobs and slower wage growth, historically to the point where we tip into recession.”

    And the best way to do this is to fire a bunch of people in a recession so they can’t afford to buy those things. 😂

    https://www.nytimes.com/2022/04/14/opinion/interest-rates-inflation-federal-reserve.html

    Good grief. It’s a sure bet we can’t have that nice child tax credit. That would just give them more money to spend! I’m going to voluntarily stop spending on junk I don’t need. And for goodness sake, stop buy those fast food chicken sandwiches.

    https://www.bloomberg.com/news/articles/2021-06-15/poultry-prices-soar-to-record-amid-u-s-chicken-sandwich-wars

    “Chicken-sandwich fever means poultry is pacing U.S. food inflation in the meat case.”

  5. Salamander

    Gas prices in my Albuquerque neighborhood have been dropping for the last week or so. They're down to about $3.839 at one station on my frequent route, down from a high of 4.299. But, apparently, people are still complaining, and why not? Opening your eyes to reality makes you a LIBRUL!!

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