The price of gasoline continues to skyrocket. This got me curious about how closely it's following the price of oil these days, so I went back and did a more careful job with the regression chart I've posted a few times already. Here it is:
Gasoline is now selling for 61¢ more than the current price of oil would suggest it should. Here's what that delta looks like over the past few years:
The delta between the actual price of gasoline and the projected price has averaged around zero since 1991—which it has to if your regression is done correctly—and it's also been zero since 2000. Since 2018 it's averaged a few cents above zero.¹
But then it took off when the Ukraine war started and is now 61¢ above its projected price. Keep in mind that the projected price already takes into account the rise in the price of oil. The 61¢ delta is over and above that.
Why has this happened? It's not because of a difference between WTI and Brent crude prices, which have been consistently within a few dollars of each other this year. Is it an uncertainty premium based on fear of oil stocks being depleted later in the year as sanctions against Russia bite harder? Is there some kind of hoarding going on? Are refining and delivery costs skyrocketing, which would add to the pump price of gasoline even if crude oil prices didn't change?
I don't know. But at the moment the delta shows no sign of reverting back to its mean. It just keeps going up
¹Technical note: I calculated average delta through the end of 2021 so that it wouldn't be affected by its current runup in 2022.
This will be interesting to keep watching until we get into the fall months.
nah, the bubble will be long gone by then.
It's been quite awhile since companies had the excuse of high inflation and they're using it to jack up prices. I see it everywhere. Shelf pricing is just wrong in many stores. One item I bought the other day was $5 higher than its shelf price of $9.95. Another factor is strong demand from all the giant trucks and SUVs people are driving.
I don't share this suspicion of sudden rapacious pricing by sellers. It's always been possible to raise prices, and prices normally rise slowly but steadily. Something has been different over the past year, but profit-seeking is not a new thing. I think I know what the abnormal events have been, and I think their effects will go away. I believe inflation would have been well controlled by now if it weren't for Russia.
Michigan has (or once had) a law that merchandise with incorrect pricing had to be sold for the price marked if the consumer complained. (Yes, it depended on the item being in the correct spot on the shelf where its brand, size etc. matched the label on the shelf price). I see so much inaccurate pricing these days that I wish we could make that law national.
As in the 1970's, everyone's filling up when their tank is down 3-4 gallons?
Damned if I know.
and good ole capitalism
In the 70s many journalists maintained speculation raised gas prices far more than the crude hike imposed by OPEC
60 minutes did a segment on a board meeting of Fla Power & Light. They wanted to by oil from at $x/barrel, and one woman stood up in the meeting and said oil was available at a much lower price. She was thanked for her input, and then the bosses went on and voted to buy the expensive oil.
Well America, Newt and Fox convinced you to keep government out of economics, cause "free market capitalism" knows best. How's that working out?
"Is it an uncertainty premium based on fear of oil stocks being depleted later in the year as sanctions against Russia bite harder? Is there some kind of hoarding going on? Are refining and delivery costs skyrocketing, which would add to the pump price of gasoline even if crude oil prices didn't change?"
Pssst .... price gouging. It happens when a commodity is scarce. Markets are not perfect.
Yeah I don’t really understand why this is a shock to the wonk class. People selling something practically everyone has to have to function can charge whatever they want, especially if the supply of that something is already constrained (it’s relatively rare to find on earth, it’s expensive to set up an operation to obtain it, ownership of the places where it’s found and/or equipment used to obtain it is concentrated in few hands, some owners have their own non-economically-influenceable reasons for not wanting to sell it to everybody who wants it).
Sometimes the confluence of all those factors in parentheses outweigh the desire of sellers to maintain reputations of benevolence amongst their buyers. This appears to be one of those times.
It's not scarce. That is the lie.
The problem with this argument is that price gouging hasn't produced this effect in the past. Unless your going to argue that people have only just discovered the idea of price gouging, there has to be something else going on.
It may have something to do with the fuel companies exporting gasoline to other countries where the profit is even higher.
because they can....
Interestingly, refinery capacity has dropped ca. 5% from May 2020 to May 2021...
https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MOCLEUS2&f=M
And people keep on traveling...
Yeah, we had a family member visit yesterday and they remarked that the roads were jam packed even with gas prices this high.
Either stay home, buy a hybrid/EV, or pay up. People seem to think they have a some kind of a right to cheap fuel.
Fraud. A bubble driven by elitists.
Oil and gas companies want Republicans to win in November.
Yes, I think this is the most reasonable assumption. Gasoline wholesalers and retailers know that Democrats will do things that reduce their profit margin and Republicans will do the opposite. This doesn't require some weird conspiracy theory, just garden-variety business tactics. People are screaming about the price, but they're still driving just as much as ever. As long as the demand is there, they will do what's in their interests.
Nope, EIA will destroy that theory this week. The pre memorial day down draw is being investigated as well.
Answer:
Profiteering by the Oil Companies.
See XOM stock price.
Up 58% YTD
Didn’t Shell recently announce its best quarter ever? Yay for stockholders!
Looks like oil companies are colluding to kill the democrats
Well Democrats notice.
One thing that hasn't decreased as the price of gasoline has gone up, IME, has been the speed Americans drive their cars. You'd think they'd want to slow down and save gas at $5.00 + a gallon, but NOOOOOOO!
What I find odd; all around the large metropolitan area where I live, every station has the exact same frickin’ price. Prices always vary (and often by quite a bit ) from area to area and even from station to station unless they’re directly adjacent to each other.
Open the gas app now, and all I see is a sea of the same price. Literally like 3 or 4 stations out of several hundred sell for a different price point. Maybe it’s just stations trying to stay ahead of their next restock purchase, but it has a smell of something artificial about it.
It has the smell of the gas app. In the days before gas apps, you had to actually drive around to see what prices were posted, and so the direct competition for a gas station was other gas stations within a few blocks, mostly other gas stations within eyeshot. The result was that gas stations in sight of each other tended to have the same price, but you would see price variation anywhere there was more than a few blocks of separation between stations.
With the gas app, a station's direct competition is every other station within reasonable driving distance, which means "a few miles" rather than "a few blocks". Thus, prices are homogenized among all gas stations with several miles radius, instead of just stations across the street from each other.
….But I’m not talking about “several miles radius.” Or even “reasonable driving distance.”. I’m saying every station is selling at the same price (to the penny) in a 40-50 mile area.
Gas apps aren’t to blame. More likely, stations are just jumping on the ‘prices are going up’ band wagon and doing a little price gouging before they have to make their next restock purchase.
In a metropolitan area where there are no large gaps between stations, it tends to spread. For instance, if every gas station within a five mile radius of station A has been impelled by competitive forces to have the same price, and station B is precisely five miles from station A, the tendency will be for every station within five miles of station B to have the same price, and so on for stations C, D etc. This will continue until you get to a point, usually at the edge of the metro area, where there is more than a five mile gap between stations.
I see this in the rural area where I live, where the towns are far enough apart that it's not practical to drive to the next town for gas. Within each town, the prices are uniform; between towns, they are variable.
From 1960 to 1990 US exported less than 1% annually of its refined gasoline. Since 1990, the number has been steadily growing to 9.76% in March of this year. Now, this doesn't explain the whole picture, but here's one more lever POTUS could pull, with an immediate effect on gasoline prices, though it may violate NAFTA (as more than half of US exports of refined gasoline ends up in Mexico) and it might be counterproductive to cutting US emissions.
But also, adjusted for inflation, gasoline was still more expensive in 2008 (peak at about $5.50/gal in 2022 dollars) than right now, and rather than the contraction of 2008, employment and GDP continues to expand.
I'm with most everybody else:
Maybe gasoline prices are simple profit-taking under cover of "inflation", with the added benefit of causing Americans to vote Democrats out of office.
I'd say a whopping big "windfall profits tax" is in order. If only the Republican-controlled yet somehow Democratic-run Senate would permit any action.
It absolutely is wingnut executives in the oil industry taking a heaven-sent opportunity to destroy the Democrats, who, we can be certain, will never hold any kind of timely investigation into the issue, when it might actually do some good.
Other countries view all mineral wealth as inherently national, isn't it time we do they same, as a matter of vital national interest?
Yes, this is by far the most likely explanation. Can you imagine an oil executive saying 'Gee, by raising prices now, we can get even more money now, PLUS screw over the Democrats. But that would be unethical.....'
No, if they ever had that thought in their heads, they wouldn't hesitate to dismiss it and go for the twofer, and laugh while doing it.
The only thing that will bring those prices down is people buying less. As we are moving into the summer, that is not very likely to happen soon.
No doubt the gasoline companies are taking advantage of the situation and their politics tends to be extreme right wing, but gas prices go up when Rs are in power and it's not like Ds have ever done anything that really hurts their bottom lines.
They are already buying less idiot.
Not enough less to impact prices. Dullard.
You don’t think CAFE standards and EV incentives hurt gas sales?
Sales =/= profits.
Would we expect the delta to be a fixed number of cents, or perhaps a percentage of the price?
Kevin’s fondness for trendlines does not seem to have extended to his chart of the delta. But is seems the delta has been growing, erratically, for several years.
yep--if's based on return on investment, so should be done as percent of price, not absolute amount.
No. Oil is a raw material, all the refiner needs to do is pass the cost through to the consumer. Refining expensive oil doesn’t require any investment beyond what was needed to refine it when it was cheap.
Apparently, the bottleneck is refinery capacity. Refineries closed during the covid reduction in demand and have not reopened. Further, nobody is building new refineries for the sensible reason that they are amortized over at least thirty years and the probability is that the demand for refined petroleum products is going to decline substantially in less than thirty years. In other words, building a new refinery now is almost certain to be a money-loser.
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