Slide 7 of 11
Notes:
- While EIA cannot claim to explain all of the factors that drive retail gasoline prices, we have had a fair amount of success in exploring the relationship between wholesale and retail prices. In particular, we have looked closely at the “pass-through” of changes in spot prices to the retail market.
- This graph shows a weighted national average of spot prices for regular gasoline –both conventional and reformulated (shown in red), and EIA’s weekly survey price for retail regular (again both conventional and reformulated). As you can see, spot prices tend to be more volatile (and would be even more so on a daily basis), while these changes are smoother by the time they reach the retail pump. Furthermore, by looking at the peaks, you can see the retail prices seem to lag the spot price changes slightly.
- EIA econometric analysis demonstrates that the typical price pattern at the retail level (i.e., downward sticky price changes) are almost completely explained by the lagged pass-through of prior wholesale changes. If spot prices were to jump 10 cents this week, for instance, part of that increase would show up at retail next week, but the remainder would be spread over the following weeks. In fact, we have found that it can take as long as eight weeks or more to pass through the entire effect, though the majority is seen within the first few weeks.
- This effect can explain some of the seemingly anomalous behavior of retail prices in relation to wholesale. For instance, at the end of a sharp rise or fall in spot prices, retail prices may continue to move in that direction even after spot prices have changed course, because the previous increase (or decrease) is still being passed through. Also, many have claimed that gasoline prices rise faster than they fall. EIA’s research has shown that this apparent “asymmetry” is mostly an artifact of the lag in price pass-through from wholesale to retail.
