NACS: Gas Prices Explained Like Rockets and Feathers

NACS explains how there is some asymmetry between gas price increases and decreases, but it’s a stretch to say prices go up like a rocket and come down like a feather.

​ALEXANDRIA, Va. June 22, 2017; Do gasoline prices really go up like a rocket and come down like a feather? During the past 30 years, countless congressional hearings and government reports, by groups ranging from the Federal Trade Commission (FTC) to the U.S. Energy Information Administration (EIA), have examined and studied this question.

“Gas Prices: Rockets and Feathers,” released today as part of the NACS Fuels Resource Center, explains that the short answer is yes, there is some asymmetry between gas price increases and decreases, but it’s a stretch to say that prices shoot up like a rocket but fall like a feather. Still, the perception remains. Three quarters of all consumers (75%) say that gas prices increase faster than they decrease, according to the 2017 NACS Consumer Fuels Survey.

Oil and gasoline are commodities and are traded on various exchanges, which brings a great deal of transparency in looking at how they are both priced. There is also great transparency at the retail level. Retailers post their prices on the street, mostly on signs that drivers can see before deciding to pull into their lot, as well as mobile apps. In addition, groups like AAA publish retail gas prices daily, while various gas price websites update prices even more frequently. While not perfect companions, this market transparency is helpful in examining the rate of retail gas price increases and decreases.

While there may be asymmetry between gas price increases and decreases, it really isn’t at the rocket and feather level.

The Federal Trade Commission’s “Asymmetric Pass-Through in U.S. Gasoline Prices” report says that since 2006, the overall impact of price pass-through asymmetry was about 1 cent per gallon for unbranded retailers, and 2 to 3 cents per gallon for branded retailers. These findings were consistent with those from different government studies conducted over the years.

The U.S. Energy Information Administration’s February 1999 report, “Price Changes in the Gasoline Market,” says that retail prices “do sometimes increase faster than they fall, but this is largely a lagged response to an upward shock in the underlying wholesale gasoline or crude oil prices, followed by a return toward the previous baseline. After consistent time lags are factored out, most apparent asymmetry disappears.”

“Gas is unique among a convenience retailer’s products. While other products are affected by the prices of commodities—orange juice, bread or hamburger patties—gas is a commodity and its price can see dramatic changes—changes that happen over a period of days or even hours. At the same time, consumers are extremely price sensitive and will seek out deals or drive out of their way to save as [little] as a few cents per gallon at the pump. These dynamics affect every decision made by fuels retailers as they seek to attract consumers to their pumps and inside their stores, whether wholesale prices are increasing or decreasing,” said NACS Vice President of Strategic Industry Initiatives Jeff Lenard.

About the NACS Fuels Resource Center

Nearly 40 million Americans fill up their gas tanks a day, searching for a good price and convenient location. Gasoline is arguably the one product that consumers think more about, yet often misunderstand.

For each of the past 16 years, NACS has provided fact-based analysis of market dynamics to explain how gas is sold and the composition of the retail fuels industry. These resources are updated with exclusive consumer survey data each month, as well as additional backgrounders on key industry issues. Earlier this year NACS published new 2017 resources at the Fuels Resource Center that address issues top of mind with consumers and the media.

NACS highlights a new resource from the Fuels Resource Center every week that touches on timely fuel-related topics. For questions and suggestions, contact Jeff Lenard.