Here’s another take on the ridiculously high prices at the pump

So, about those gas prices. Why is it that the price of crude oil was less than $100 a barrel last week and gas at the pump in Connecticut is still $4.54 a gallon?

Last week I filled our truck tank with gas for the first time in a year.  (I know. Don’t say anything. Husband is the main driver, gas-filler-upper in our family.)  The truck gas tank was embarrassingly close to fumes. 

I was surprised when it cost $75, and my tank was only three-quarters full.

My first instinct was to report the incident to my husband. I thought the off-brand gas station was stealing from us.  Perhaps their gas gauge on the pump was wrong. Husband said no. It sounded about right, he said. Then he asked me when was the last time I pumped gas? Embarrassed I shut up. 

The thing is, I can’t let a sleeping dog lie.  I have to kick (or maybe a better word is “nudge”) it a few times lightly because I really love dogs. (Oh yeh. I nudge dogs and I kick tires.)

What accounts for the fact that Connecticut’s price of crude has dropped 16% in the last month and the price we’re paying at the pump has only dropped 6.6%. Husband said at this point, “Oooo.  Math.”  He really doubts me.

Is the answer as simple as “it is the greedy, monopolistic oil companies stealing from our wallets?” Husband says it is.

Or should we lay the blame on the energy and climate policies of the Biden Administration?

I always thought it was the crazy confluence of market forces like the Russian embargo, supply chain problems and an overheated economy. Husband, who used to work on an oil tanker and follows such things, has always said a big contributor is the fact that there have been no petroleum refineries built in the U.S. in 46 years. (Source: No New Refineries in 29 years. NY Times. May 9, 2005)

On Friday I stumbled upon an interesting economic theory outlined in Paul Krugman’s column in The New York Times. He referred to the economists’ blog at the St. Louis Federal Reserve Bank . They recently pointed out that there’s a longstanding phenomenon in the fuel market known as asymmetric pass-through or, more colorfully, rockets and feathers. The idea here is when oil prices shoot up, Krugman says, prices at the pump shoot up right along with them (the rocket). And when oil prices plunge, prices at the pump eventually fall, but much more gradually (the feather).

This phenomenon in part is a result of the market power of companies that face limited competition. Gas stations and oil giants are inclined to not just pass on costs but also raise markups because the (dumb) consumer won’t know the difference.  Meanwhile, when prices come down they hang on to the extra markups for a while even when oil prices fall.

This makes sense to me. And according to Krugman, this same principle can also be applied to inflationary pressures.

I wish I had taken something useful like Economics in college. It isn’t too late.  Maybe a Coursera class is in my future.

7 comments

    • Fair enough picpholio. I notice people are changing behaviors here. Europe has always been more conservation conscious (smaller cars, better mass transit.)If these prices hang on, I expect people on both sides of the pond will need to reassess how they get around.

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  1. The prices in Canada have been crazy as well. We’re just now seeing them dropping a bit (here in our province, at least) each week. Hopefully that trend will continue.

    Liked by 1 person

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