Biden demands faster drop in gas prices as oil tumbles
Price of oil drops below $100. That's good news for gas pricesReplayMore Videos ... (16 Videos)Price of oil drops below $100. That's good news for gas pricesHere's what Europe is doing to wean off reliance on Russian gasNYC taxi driver: I'm barely surviving with business down and gas prices upHow to save money on gas by being more fuel efficientThe US banned Russian oil. So, what now?Western allies move to cut Russian energy importsAverage US gas price soars above $4 nationwideWhy banning Russian oil could backfireCommodities expert: Panic dominates oil market as Russian oil is shunnedOil prices spike as supply disruption fears grip USUS stocks rebound after Biden announces sanctionsEurope could face a crisis if Russia stops gas flow to EuropeDrivers are crossing state lines to get cheaper gas amid price hikes$100 oil? Citigroup doesn't think soGermany plans to phase out nuclear energy as Britain expands it Biden aims to lower gas prices with release of oil reservesNew York (CNN Business)President Joe Biden is using his bully pulpit to call out the tendency for gasoline prices to go up like a rocket when oil spikes, but only drop like a feather when crude crashes.
Biden fired off a tweet Wednesday morning highlighting the painfully slow decline in gasoline prices in a bid to draw scrutiny to a decades-long trend that critics say hurts consumers by failing to pass savings along to drivers. "Oil prices are decreasing, gas prices should too," Biden said on Twitter. "Last time oil was $96 a barrel, gas was $3.62 a gallon. Now it's $4.31. Oil and gas companies shouldn't pad their profits at the expense of hardworking Americans."Oil prices are decreasing, gas prices should too. Last time oil was $96 a barrel, gas was $3.62 a gallon. Now it's $4.31. Oil and gas companies shouldn't pad their profits at the expense of hardworking Americans. pic.twitter.com/uLNGleWBly
— President Biden (@POTUS) March 16, 2022 The administration's focus on the intricacies of energy prices shows the level of frustration inside the White House with one of the central drivers of high inflation. Gas prices skyrocketed to record highs last week, following a spike in crude oil to levels unseen since 2008. Read MorePrices at the gas pump are going down -- but only very gradually. The national average for regular gas dipped to $4.31 a gallon on Wednesday, according to AAA. That's down a penny from Tuesday and two pennies from Monday. That's despite the fact that Brent oil collapsed by 28% between the March 6 intraday peak and Tuesday's close. 'It just seems to take a long time'This is nothing new. The industry even has a nickname for this practice: Rockets and feathers."This has been going on for 40 years," Andy Lipow, president of consulting firm Lipow Oil Associates, told CNN. "Prices do dip, it just seems to take a long time. You can't deny the data that is out there."Old or new, Biden isn't a fan, especially after observing this phenomenon last fall when gas prices retreated slowly after the administration released emergency oil reserves and Omicron hit."Try explaining how it's just rockets and feathers to President Biden, and you'd better be ready to hear, 'That's a bunch of malarkey' coming back at you," a senior White House official told CNN. "The president is very much within his rights to point out that if you're going to have rockets on the way up, you need to have rockets on the way down, not feathers."Oil prices dropped 30% in a week. What gives?But it may be unreasonable to say pump prices should change instantly just because oil prices do. It takes time for price swings to filter through the supply chain. A gas station owner may be selling fuel today that was purchased days earlier when oil prices were much higher. (That's especially true in today's extremely volatile market.)"Don't get me wrong. There would be some lag," Lipow said. "What if I was the guy who just bought my tanker load yesterday and the next two days crude oil dropped?"Tom Kloza, global head of energy analysis at the Oil Price Information Service, said gas stations have little choice but to pass along the impact of higher oil prices on the way up because of the pressure on their profit margins."And on the way down, It's like, 'We'll be as patient as we can,'" Kloza said. "They will fall, but at a much slower pace."Joe Brusuelas, chief economist at consulting firm RSM, noted that gasoline prices are a function of past purchases and expectations around the cost of future deliveries -- and there is vast uncertainty right now about the direction of oil prices. "Criticism of price setting at gasoline stations is somewhat misguided," Bruseulas said. $1,300 hit to householdsThere are real economic consequences here. Every 10-cent increase in the price of gasoline costs consumers at least $11 billion over the course of a year, according to Moody's Analytics.Gas prices have surged over the past year and a half, and at the end of last week, they stood about $1.50 a gallon higher than the 2019 average. If prices stay this high, consumers will pay $165 billion more over the course of 2022 than they did in 2019, according to Moody's Analytics.Oil prices dropped 30% in a week. What gives?Put another way: Annual average spending on gasoline would climb by roughly $1,300 per US household, Moody's told CNN. The senior White House official suggested gas station owners are not passing along savings to consumers as quickly as they could."This is using price power in a way that is not particularly fair from the perspective of the consumer," the official told CNN.GasBuddy's Patrick De Haan said earlier this week the gas price drop should accelerate if oil stays below $100 a barrel. "Stations lost their shirt on the way up, but now margins are improving and they will start passing the discounts on to you," De Haan wrote on Twitter.'Uneven' link between oil and gas pricesOf course, the oil industry was in deep distress just two years ago. Oil prices crashed, with US crude turning negative for the first time ever, driving gasoline prices dramatically lower.The National Association of Convenience Stores, a trade group that represents the fuel retailing industry, did not respond to a request for comment.There is some academic research that supports the argument from the White House.The Federal Reserve Bank of St. Louis published a report in 2014 pointing out there is an "uneven" relationship to how oil prices impact gas prices. That report was based on a review of academic work measuring the so-called pass-through of oil and gasoline. "When oil prices rise after being steady for some time -- gasoline prices shoot up quickly," the Fed paper said. "In contrast, when oil prices fall after being steady for some time, gasoline prices retreat slowly."Who owns the gas?Biden's focus on this issue comes after House Democrats wrote a letter last week urging Congressional leadership to immediately investigate and hold hearings on "alleged price gouging within the oil and gas industry."Democrats also introduced a Big Oil Windfalls Profit Tax that would aim to "curb profiteering" by oil companies. Although gas stations are often emblazoned with the logo of a major oil producer like Exxon or Shell, they are often owned and operated by independent retailers. Gas station owners are licensed to represent that household brand. For example, ExxonMobil (XOM) says it does not own or operate retail gas stations in the United States, even though there are countless Exxon and Mobil gas stations throughout the country. As of the end of 2020, Exxon listed nearly 11,000 distributor sites in the US. Oil refiners own less than 5% of the nation's roughly 150,000 retail gas stations, according to the American Petroleum Institute. Many gas stations are owned by an individual or a family, while others fall under a corporate entity that owns hundreds. At the end of the day, Kloza said people who can wait before buying gas will benefit."If you can hold off five days to fill up your tank, you will get a lower price," Kloza said. Click Here To Get Funded!