When Crude Oil Prices Fall, Prices at the Pump Do Not
April 18, 2022—Crude oil prices have gone down more than 20 percent since their high in March, but prices at the pump don't seem to be budging as readily.
According to an article from The Washington Post, this pattern actually has a nickname given to it by many economists called "rockets and feathers". Essentially, what it means is when crude oil prices "rocket", pump prices make a gentle fall, much like a feather.
Some of this phenomenon is due directly to consumer interest. Drivers keep a closer eye on pump prices, so they may do a little bit more shopping around than usual. Once they find a pump that has lower than expected prices, they will jump on the chance to fill up. Little do they know, crude oil prices are falling much more than the price they are actually paying to pump.
With prices at the pump around $4.11 (almost double their average in 2020), consumers are especially sensitive to this transaction.
On the other hand, gasoline stations themselves experience higher profit margins during this rockets and feathers effect. "When prices soared in early March, stations made just 35 cents on each gallon." The article said. "In the most recent week, as crude prices continued to fall, stations were pocketing 55 cents a gallon before labor and other expenses."
There is also something interesting that happens amongst gas stations during times such as these. Station competitors keep their pump prices higher, and since these prices are all readily visible to one another, no one wants to be the one to lower their prices first.
While there are many other factors at play here (such as the fact that oil extraction executives are the ones consistently making a high profit, regardless if crude oil prices drop), the article does conclude with the understanding that "...gasoline prices will catch up with pump prices as gas stations push each other’s prices down in a slow, steady battle for customers. But even as crude prices fall, they remain relatively high in historical terms, making it unlikely that pump prices will fall to pre-pandemic levels in the near future."