Key facts
- President Trump has accused oil companies of "gouging" consumers by failing to lower gasoline prices in line with falling crude oil costs.
- He has directed the Justice Department to investigate these pricing practices.
- Gasoline prices often increase immediately when crude oil prices rise but decline slowly due to the time lag in refining and distribution.
- This price asymmetry, known as the "rockets and feathers" phenomenon, is attributed to the economics of managing higher-cost inventory, not widespread collusion.
- Multiple economic studies and past investigations, including by the FTC, have found little evidence of price gouging by energy companies.
President Donald Trump recently accused major oil companies of "gouging" consumers by failing to lower gas prices at the pump quickly enough, despite falling crude oil prices. He instructed the Justice Department to immediately investigate.
Gasoline prices at the pump often increase immediately when crude oil prices rise, yet they decline at a frustratingly slow pace when oil prices drop. This asymmetry, often referred to as the "rockets and feathers" phenomenon, frustrates drivers and fuels accusations of price gouging. However, economic studies suggest the reason stems from the economics of the petroleum supply chain, not conspiracy or corporate greed.
Gasoline sold today is typically refined from crude oil purchased weeks earlier. Refining, transportation, storage, and distribution to retail stations take time, often 2 to 6 weeks or longer. When crude oil prices fall sharply, refiners and retailers continue to process and sell fuel made from higher-cost inventory already in the system. Cheaper crude must first be purchased, refined, and moved through the pipeline before it reaches the pump. Gas stations, the vast majority of which are independently owned, rotate their existing stock gradually rather than dumping it at a loss, creating a natural delay on the downside.
On the upside, rising crude prices prompt quicker adjustments as businesses anticipate higher replacement costs and begin raising prices to protect margins. Consumer demand also plays a role, as drivers often accelerate purchases when prices are expected to rise, thereby tightening near-term supply. This pattern of inventory lags appears in many commodity markets with long production and distribution chains.
Multiple economic studies have examined this asymmetry, finding it persists across regions and time periods, though its intensity fluctuates with market conditions. Researchers have found little evidence that the pattern results from widespread collusion among oil companies or retailers. Instead, it emerges from rational incentives to hold higher-cost inventory during price drops and to hedge against future cost increases during price rises.
Past investigations, such as one by the Institute for Energy Research in 2008, found no evidence of price gouging by energy companies. Subsequent investigations into price increases in 2021-2022 concluded that price movements reflected global crude prices, supply disruptions, OPEC+ decisions, refinery outages, and seasonal demand, not domestic collusion or misconduct. Any investigation by the Trump administration is expected to return similar findings.