Gas Prices Follow Oil Prices Down

Because of house and work I’ve missed much of the gas price hoopla over the past month. Others have been paying attention, though, and I recommend this post from Steve Verdon for its wealth of quantitative analysis and information.

Retail gasoline prices react to crude oil prices in a “rocket and feathers” pattern: when crude rises, retail prices shoot up, and then float back down. Most empirical studies of this phenomenon find that all of the crude price decrease is typically reflected in the retail price decrease within two weeks.

3 thoughts on “Gas Prices Follow Oil Prices Down

  1. Lynne, is there a good clear literature about the relation between downward price-stickiness and forward markets? This has been fascinating me lately as a potential research topic–if prices are expected to rise, refiners hold inventories instead of selling the stuff. This would drive prices up immediately. But if prices are expected to fall, inventories more or less corner out at 0 and prices hit a floor.

    Please help an old Northwestern grad out.

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