Populist Notions About Gasoline Prices

Permit me to turn a bit free market – dare I say – rightwing. Yesterday afternoon, I had to endure some local radio host being really populist as he tore into the oil companies. He was whining that gasoline prices have not fallen in line with the decline in oil prices. This claim struck me as very odd so I checked the monthly data from July 2006 to November 2006 and saw that the retail price of a gallon of gasoline had declined by $0.75 a gallon or 25%. The component attributable to oil fell by only $0.27, which turns out to be a 17% decline. The component attributable to the refinery margin fell by $0.46, which turns out to be a 58%. OK, the components attributable to the distributor margin and taxes fell by a mere $0.02. But I would suggest our populist radio host check the data data before he decides to attack the oil companies. Or maybe he can join Robert Novak in some cable news debate show. Remind me when it is on – so I don’t have to watch.

Update: AB reader K Harris points us to an interesting article by Barbara Hagenbaugh:

Gasoline prices dropped over the holiday weekend and are likely headed lower. But drivers who expect gas prices to fall as sharply as oil prices in recent weeks will likely be disappointed. That’s because gas stations aren’t seeing their fuel costs drop as swiftly as oil prices. And studies have shown retail gas prices “rise much more quickly when oil prices rise, and they fall much more slowly when oil prices fall,” says Stephen Brown, director of energy economics at the Federal Reserve Bank of Dallas.

So that fellow on the radio was not as crazy as I thought according to Stephen Brown. Maybe I need to take a look at these studies.