Crude oil prices have tumbled more than 20% off their highs in recent weeks. But don’t rush out expecting to find bargain prices at the gas pump.
Although gas prices too are off their highs, they still remain far above where they were a year ago. As the Washington Post reports, this phenomenon is nothing unusual. It even has its own name:
“This pattern is so common, especially with gas prices, that economists have a pet name for it: rockets and feathers. When crude prices jump, pump prices tend to rise like a rocket. But when crude prices fall, pump prices tend to descend gently, like a feather.”
What’s behind this pattern? The Post says there are many theories, ranging from greed to collusion. But the newspaper says a simpler explanation is more likely: consumer interest.
When prices are rising, drivers get finicky, carefully searching for the station with the best price. This forces stations to compete harder for business.
On the other hand, when prices fall, drivers immediately see a deal and pull in to fill up — not realizing that perhaps the price is actually higher than it should be.
As Tom Kloza, global head of energy analysis at the Oil Price Information Service, tells the Post:
“The biggest myth is that retailers love it when the price goes up, because they make so much money. The reality is they love it when the price collapses.”
The Federal Reserve Bank of St. Louis also has noted this trend. In a 2014 report, it concluded that because drivers rarely notice gas prices until they must refuel, “consumer expectations may be slow to adjust to pricing changes, allowing prices to remain relatively high.”
However, don’t worry: Eventually market dynamics will take over, and stations will start competing more aggressively for your gas dollar. As that happens, prices at the pump will surely fall, the Post says.