Gas Goes Up With Oil But Down Slower

Many people have observed that the pump price of gasoline rises quickly when the price of crude oil goes up, but drops more slowly when the oil price drops. This fast up slow down price behaviour is known as an asymmetric price relationship. Does it really happen this way? Or is it a mistaken impression, perhaps born out of bitterness at having to pay a lot at the pump? Several studies of the relationship between oil and gas prices have been done. The Federal Reserve Bank of Dallas has done a detailed and comprehensive study specifically to look for gasoline-crude price asymmetry.

Although the study document linked to above is quite technical, it is easy to read the conclusion. And what is the result? No surprise for most of us: the study clearly finds that there is an asymmetrical relationship. It is true that when the oil price goes up gasoline goes up quickly but when the oil price drops, gasoline drops more slowly. The mentioned study does not attempt to determine why this happens. It only confirms statistically that it does happen. Of course, most people can quickly think of a reasonable explanation. The gasoline merchants want to make a few extra bucks, so they hold the consumer price of their product up while enjoying cheaper wholesale prices. The study provides no statistical backing for this explanation, but one quick look at the greedy behavior of a typical mega corporation shows that this particular shoe sure does fit.