Wednesday was a banner day for deeply flawed energy opinions that sought to blame the U.S. oil and natural gas industry for high gas prices – a claim that was universally and swiftly rejected by bipartisan members of Congress, energy analysts, and the media.
The day started off with President Biden tweeting that energy companies “shouldn’t pad their profits at the expense of hardworking Americans” and finished with the U.S. House Energy & Commerce Committee announcing a hearing with energy companies over gas prices and Chairman Frank Pallone (D-N.J.) claiming that “the industry appears to be taking advantage of the crisis for its own benefit.”
These talking points from the president and Rep. Pallone were immediately rejected as a failure to understand the energy market: there is always a lag time between the price of oil and the price of gas at the pump.
Sen. Chris Coons (D-Del.):
“Is there normally a lag between a change in [crude oil] price and the price at the pump? Yes. The energy production system is complex and has many stages in the chain and the volatility of the price per barrel has been huge in recent weeks.”
Sen. Joe Manchin (D-W.V.):
“I have no problem bringing [oil companies] in to basically explain how the process works. Then we can all understand it a little better, rather than beating people up who are expected to provide the energy we need.”
Energy Analysts and Academics
Garrett Golding, Dallas Federal Reserve Bank:
“Refiners acquire crude oil and turn it into the fuels we use. It’s then sent by pipeline, truck, railcar, and vessel to distribution facilities and service stations. This process can take several days. Inherent to that is a time lag between what you see with daily oil prices and what service stations pay to fill up their underground tanks. While oil prices shot up immediately, it took almost two weeks for the full effect to be seen on the street. … It’s not price gouging or a grand plot by the industry. This is how the business functions.” (emphasis added)
Morgan Bazilian, Director of the Payne Institute for Public Policy:
Gasoline prices have a time lag to oil prices.
There have been myriad investigations on price gouging over decades, they rarely bear fruit.
This is a political tool used during times of high prices and high voter pressure.
Understandable to use it, but not very helpful. https://t.co/SoTZvP0Uvr
— Morgan Bazilian (@MBazilian) March 16, 2022
Bob McNally, Rapidan Energy:
“There’s always a multi-week lag between global crude oil and domestic pump price changes, Mr. President. If these recently lowered crude prices stick, pump prices should follow. Recommend asking [Energy Information Administration] to explain these realities to you & your staff. Gouging is not an issue, sir.”
Nicole Petersen, GasBuddy:
“Essentially, gas stations often take losses when oil prices rise so quickly, because they cannot dramatically increase pump prices due to local competition. When oil prices drop, stations take a little bit more time to lower prices as to recoup any losses taken when oil prices rose quickly.”
Kevin Book, ClearView Energy Partners:
“It doesn’t necessarily mean manipulation or gouging. Oil prices go up and down. Gasoline prices do as well. They don’t always do it together. We are at a point of low inventories, seasonal changeover, and refining constraints, so it’s not likely they are going to move in lockstep right now.”
Tom Smythe, finance professor at Florida Gulf Coast University:
“Some of it is the supply chain that we’ve been experiencing for two years. Now, on top of that, we are exacerbating it with a lack of supply in a particular area, in this case, petroleum. To suggest the oil companies are gouging us, it’s just not accurate.”
Severin Borenstein, Haas School of Business at UC Berkeley:
“They aren’t really gouging any more than if you own a house in San Francisco, and the price of housing goes up, you sell it for a higher price.”
Andy Lipow, Lipow Oil Associates:
“This has been going on for 40 years. Prices do dip, it just seems to take a long time. You can’t deny the data that is out there.”
Omair Sharif, Inflation Insights LLC:
“Unfortunately, pump prices typically adjust much faster on the way up than on the way down, so it’ll take a few weeks for the latest move to filter into what you see at the station.”
Javier Blas, Bloomberg:
I see the White House chart is sourced to Bloomberg LP data. As a public service, I’m going to suggest a different chart. Mine has some of the same elements (WTI oil and retail US gasoline price), but instead I normalized it, and use Dec 1, 2021 = 100. #OOTT #CrackMargins https://t.co/JWVbsvI1o3 pic.twitter.com/F5v9MQH5uw
— Javier Blas (@JavierBlas) March 16, 2022
“Democrats blame oil companies for high fuel prices. But the facts don’t back them up. … But Democratic leaders’ charges of anti-competitive behavior are being met with skepticism by analysts and even some rank-and-file Democrats who note there is normally a delay between falling oil prices and movement on the gasoline front.”
“This is nothing new. The industry even has a nickname for this practice: Rockets and feathers. … 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.)”
“Many gasoline stations have only two or three days of product in stock, and so price gasoline at what it will cost to refill those tanks underground. This is an economic term known as replacement cost. Every $10 increase in the price of crude oil adds about 24 cents to the cost of each gallon of gasoline and is quickly reflected in what you pay at the pump. It’s not an example of price gouging.”
“The chart shows that the price increase at the pump failed to keep up with the incredible jump in crude oil prices. It also shows that oil companies were making less money, not more on the way up. That is why it seems to some that prices go up much faster than they fall because, after a big price spike in crude, most oil companies get squeezed on the revenue side on the way up. In other words, based upon that chart, it’s very clear that energy companies did not pass on the entire price increase in the cost of crude oil and may have to keep prices higher to make back revenue they lost on the way up.”
“Yet, there is always a lag between movements in crude oil and pump prices as it takes time for costs to filter through the supply chain – from wholesale prices down to so-called racks that are the source of supplies for gas stations.”
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