Daily Local News (West Chester, PA)
Oil prices have dropped. Will gas prices follow?
Prices at the pump remain near historical highs in the region
There is an adage that prices tend to rise like a rocket and fall like a feather in a supply-and-demand economy.
That seems especially true of gas, as pump prices never seem to drop as quickly as they shoot up.
So when the cost of crude oil — the largest component of retail gas prices — skyrocketed in recent weeks, so did gas prices, reaching a record average of $4.46 for a gallon of unleaded in Berks County a week ago.
But this week when oil prices fell almost 30% to below $100 per barrel, gas prices didn’t decrease at the same rate.
That’s how it usually works, and an example of what is known as price stickiness, said Michael Axman, spokesman for AAA of Reading-Berks.
When oil prices rise, retailers know they soon will be paying more for the gas delivered to their stations, he said. So while it may actually take a week or two for those wholesale prices to fully kick in, the gas stations start charging more.
When oil prices start coming down, though, the businesses are usually more hesitant to lower prices before being certain the trend continues, he said.
“It’s riskier to lower prices too
quickly than to raise them quickly,” he said.
The potential downside to retailers raising prices too much too soon is that customers will buy gas elsewhere, but retailers in an area typically rely on the same formula in setting prices, so they are usually pretty consistent, he said.
While that system frustrates drivers, the same approach is used by retailers
for many goods, he said. Consumers are more aware of how it relates to gas prices because the cost of oil is much more publicized than the cost of other goods, he said.
If oil prices continue to fall, in time gas prices should follow, federal Energy Information Administration analysts said in a weekly report Wednesday.
President Joe Biden this week called on retailers to lower prices faster.
Fluid situation
While there has been a
small decline in gas prices the last few days — with the average cost per gallon dropping 10 cents in the last week in Berks according to AAA — GasBuddy is among the industry analysts warning that break could be short-lived.
Overall gas prices rose nationally for the 11th straight week, climbing 26.4 cents from a week ago to $4.32 per gallon as of Wednesday, GasBuddy said.
The national average is up 83.6 cents from a month ago and $1.47 per gallon higher than a year
ago. The national average price of diesel has risen 53 cents in the last week and stands at $5.14 per gallon.
“The situation remains fluid, and escalations remain very possible, if not likely,” said Patrick De Haan, head of petroleum analysis at GasBuddy. “For now, a $4.50 per gallon national average is off the table, but it certainly could be a future possibility as long as there is conflict between Russia and Ukraine.”
With the summer driving season drawing closer and American refineries
starting to shut down for their annual EPA-mandated switch to cleanerburning but pricier summer blends, Axman believes prices will remain high throughout the summer.
And in a recent AAA survey of motorists nationwide, 59% said they are making lifestyle changes to account for higher gas costs, whether it is driving less or cutting other expenses.
In explaining why prices have risen so high in recent weeks, the EIA said global petroleum consumption
has increased more rapidly than petroleum production since 2020, so Russia’s further invasion of Ukraine came at a time when the world was already dealing with low oil inventories and rising demand due to the lessening impact of the COVID pandemic.
The subsequent sanctions on Russia and other actions have created significant market uncertainties about the potential for oil supply disruptions, since prices have tended to be more sensitive in times of low inventories, the EIA said.