Yahoo Finance
Here's the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months: It's the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.
The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump's Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.
supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases.
The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.
Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular,according to AAA.
That's up 12 cents from a month ago and higher by $1.38 from a year ago.
So the pace at which pump prices return to those halcyon days before Trump's saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.
The economics of gasoline play a unique role for most households.
That's largely because gasoline demand is relatively inelastic, in economic parlance: It's hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.
They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.
That makes it useful to understand what drives gasoline prices higher or lower.
Read more:Hiltzik: An oil company joins with the Trump administration to bully California over offshore drilling The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remainsa 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.
| Product | Price | Change |
|---|---|---|
| Brent Crude | $102.14/bbl | ▲ +0.34% |
| WTI Crude | $96.90/bbl | ▲ +0.21% |
| EN590 Diesel | $846/MT | ▲ +0.18% |
| Jet Fuel A-1 | $1090/MT | ▲ +0.55% |
| Mazut M100 | $450/MT | ▼ -0.15% |
| Bitumen 60/70 | $470/MT | ▲ +0.08% |
| Sulphur Gran 99.5% | $470/MT | ▼ -0.44% |
| Urea 46% Gran | $650/MT | ▲ +1.12% |
| NPK 16-16-16 | $460/MT | ▼ -0.28% |
| Nat Gas TTF | $15.42/MMBtu | ▲ +0.92% |
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