The question is often asked: Why is it that gasoline prices always go up immediately when the price of a barrel of oil goes up, but never come down right away when oil drops? Of course, it’s a rhetorical question in the sense that the questioner has already concluded that service stations and oil companies are “on the take” and are quick to raise prices but snail-like in the other direction.
So what’s the real answer?
To get to the bottom of this, I’ve aligned the prices for a barrel of oil sold into the
Click here to see a chart of oil versus gasoline pricing from 1997 to April 2011.
Click here to see the data (Excel spreadsheet).
What do the data show?
For one thing, a barrel of oil in April 2011 is 5.5 times more expensive than it was in January 1997. On the other hand, the price of a gallon of gasoline is only 3.2 times more expensive over the same period. I have applied no inflation factor because I am comparing the price of a barrel of oil to the price of a gallon of gasoline, both priced in U.S. dollars. During this period, the price of a barrel of oil rose 410 times (week-on-week), whereas a gallon of gasoline increased only 362 times. Correspondingly, the price of a barrel of oil went down 336 times (week-on-week), whereas gasoline went down 376 times.
The increase/decrease statistics as well as the overall price multiples seem to counter the thought that gasoline prices go up quickly and ratchet down slowly. Apparently, people’s memories of gasoline prices going up are sharper than their memories of prices going down.
Not being an economist, I wouldn’t even venture to draw a conclusion based on these data, but it’s the first time I’ve seen them compared this way, so perhaps a more astute analyst than I can derive some relevant conclusions.
Copyright 2011 Randy