Key facts
- President Trump has criticized oil majors for high gasoline prices.
- President Trump has demanded immediate drops in gasoline prices.
- Oil companies cite supply chain lags for high gasoline prices.
- Oil companies cite low inventories for high gasoline prices.
- It takes weeks for falling crude costs to reflect at the pump.
- The phenomenon of lagging price changes is known as 'rockets and feathers'.
President Trump has publicly criticized major oil companies, demanding an immediate reduction in gasoline prices. The companies, however, are explaining that the current high prices at the pump are a result of ongoing supply chain dynamics and low inventory levels. They state that the lag between falling crude oil costs and the corresponding decrease in gasoline prices is a normal market phenomenon. This delay is often referred to as the 'rockets and feathers' effect, where crude oil prices can drop rapidly like a rocket, but gasoline prices fall much more slowly, like a feather.
Oil industry representatives indicate that it takes several weeks for the cost of crude oil to fully translate to the price consumers pay for gasoline. This is due to various factors within the supply chain, including refining processes, transportation, and distribution networks. Furthermore, current low inventory levels exacerbate this lag, as companies may be selling gasoline produced when crude oil was more expensive. The companies are essentially communicating that the market is not as immediately responsive to crude oil price fluctuations as consumers might expect.
The explanation provided by the oil companies highlights a structural characteristic of the gasoline market. The 'rockets and feathers' phenomenon suggests an asymmetry in price adjustments. While crude oil prices are volatile and can react quickly to global events, the retail price of gasoline is influenced by a more complex and slower-moving set of factors. This includes the cost of refining, distribution, and the profit margins of various entities along the supply chain. The current situation, characterized by low inventories, appears to be amplifying this effect.