"We understand Putin’s war against the people of Ukraine is causing prices to rise," Biden said “It’s no excuse to exercise excessive price increases or padding profits or any kind of effort to exploit this situation." Average gas prices reached $4.41 per gallon as of Friday, an increase of nearly 70 cents in the last 2 weeks, US household and people around the world are feeling the pinch of these high prices
Do gas stations actually engage in price gouging?
There is another very famous saying whenever the gas prices go up, “Up like a rocket, down like a feather”. These effects can be attributed to local pump operator who may be at the wrong side of a purchase of a tank delivery (wrong time and wrong size) and is looking to unwind the inventory. When there are operators in monopoly within certain geographies, they might be engage in keeping gas prices elevated even when the crude price do not warrant it. These actions though are not sustained for longer periods and proving price gouging or cartel like behavior is difficult to prove. There is little the state or federal government can do to prove systemic price gouging or enforce any kind of pricing cap at the pumps. I believe our focus is too granular and we are looking at entities much downstream in the decision making process.
My hypothesis is since 2015, the oil companies through consolidation and other actions have agreed to charging a premium called “transfer pricing” over the price of crude oil to sustain their profitability levels. Recent Ukraine - Russia tensions, COVID 19 lockdown, inflation, etc are factors that cause major fluctuations in oil prices they don’t explain the systemic change that is happening. How else would you explain this widening gap between the National Price of Gas/ Gallon and the Crude Oil Prices since 2015?
If you notice the chart above, up until 2015 the national price of gasoline and Crude oil price where highly correlated (direction & magnitude of moves were identical) but they were inseparable so to speak. After 2015, you can clearly see a gap emerge between the two with Price/Gallon trending consistently above the Crude oil price. Almost a concerted attempt made to charge a certain “percentage premium at the gas pump” over the Crude oil prices. In economics we call this transfer pricing and in this case it seems like the bearer of that transfer pricing or cost is the consumer. Correlations between the two still remains very high with slight decrease due to the “Up like a rocket, down like a feather” effect.
It wouldn’t surprise me if oil companies use the excuse of inflation now to further widen that gap, which means we might never see $2 at the pump ever again in any part of America. Another interesting thing to note: we are in the midst of an alternative energy revolution with electric vehicles on the street, solar and wind technologies powering homes reducing their dependence on oil. Go Figure!