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Oil Prices and Pump Prices
Table 1: Petrol and Oil Prices in the 1990s and 2000s (Cents per Gallon) Table 2: Sales Receipt Revenues of Largest Firms in the US as a
Percentage of the Total
Mean Standard Deviation
Time Period Petrol Oil Petrol Oil 1997 2002
1990s 110.47 45.58 7.906 7.371 Largest four 6.7 8.2
2000s 202.50 118.72 71.893 63.149 Largest eight 10.8 14.7
Largest 20 19.1 25.2
Prices shown in cents per gallon. Source: US Department of Energy website.
1
Largest 50 28.2 33.2
Figure 1: Historical Trends of Crude Oil and Petrol Prices
Source: US Census Bureau.
4
450 Table 3: Cumulative Effects of Crude Oil Price Increases on Petrol Prices
400
Week 1 Week 2 Week 3 Week 4
350
California 0.132 0.253 0.337 0.445
300
Texas 0.404 0.544 0.603 0.676
Washington 0.165 0.298 0.390 0.475
250
Colorado 0.175 0.359 0.415 0.515
200 Florida 0.285 0.394 0.527 0.630
New York 0.168 0.226 0.278 0.370
Cents per gallon 150
Massachusetts 0.258 0.329 0.396 0.494
100 Minnesota 0.466 0.475 0.418 0.472
Ohio 0.431 0.596 0.590 0.556
50
0
09
/2001 /2003 /2006 /2007
Table 4: Cumulative Effects of Crude Oil Price Decreases on Petrol Prices
19/1/199119/7/199219/1/199419/7/199519/1/199719/7/199819/1/200019/7 19/1 19/7/200419/1 19/7 19/1/20
Week 1 Week 2 Week 3 Week 4
Regular retail petrol price Oil price (WTI)
California 0.078 0.189 0.294 0.393
Texas 0.163 0.332 0.481 0.548
WTI = West Texas Intermediate. Source: US Department of Energy website.
1 Washington 0.073 0.225 0.331 0.470
Colorado 0.158 0.323 0.449 0.587
Florida 0.280 0.442 0.610 0.658
Figure 2: Cumulative Effect of Crude Oil Price Changes on
New York 0.124 0.268 0.409 0.501
Regular Unleaded Petrol Price
Massachusetts 0.316 0.551 0.856 0.987
Minnesota 0.475 0.576 0.717 0.742
0.6
Ohio 0.862 0.752 0.861 0.745
0.509
0.5
0.439 0.500
incentive to search for a ‘better deal’ or lower prices, thus making it
0.424
0.4
more difficult for retailers to maintain high prices when crude oil prices
0.355
0.353
decreased. Furthermore, higher petrol prices have influenced the
0.3
0.243
driving habits of Americans and thus have affected the demand for
P
er cent change
petrol. In addition, the volatility of crude oil prices has increased in
0.2
0.199
recent years. As suggested by economic theory, it is harder for
0.1
oligopolistic firms to maintain collusion when prices are volatile.
0.0
Policy Implications
Week 1 Week 2 Week 3 Week 4
In sum, our analysis has led us to believe that the time-path of petrol
Price increase Price decrease
price adjustment is ambiguous at best. In other words, petrol prices seem
to respond differently to crude oil price changes in different geographical
price of gasoline fell more quickly in response to an oil price drop than areas within the US. This suggests that the hypothesis that petrol prices
it increased in response to an oil price rise. Finally, our results showed adjust more quickly to crude oil price increases than to price decreases is
that for the states of New York, Colorado and Florida it was not supported by the post-2000 data we examined. Interestingly
ambiguous whether gasoline prices responded faster to crude oil price enough, the suspicion that consumers are systematically cheated by oil
increases or decreases. companies is not borne out by the evidence, at least so far as the
gyrations in crude oil prices are concerned. Therefore, a rush towards
There are several plausible reasons why petrol prices may not have regulation or windfall taxes in the petroleum industry might prove
responded more quickly to oil price increases than to decreases in counterproductive, even if these moves have strong political appeal.
different markets. As petrol prices have increased post-2000, Furthermore, the different petrol price responses in different
consumers have had to devote a greater share of their disposable geographical regions imply that energy policy should take into account
income to purchasing petrol. Therefore, consumers had greater the special characteristics of each market. ■
1. US Department of Energy. Petroleum data are available at Quarterly Journal of Economics, 1997;112(1):305–39. 2009;37(1):51–64.
www.doe.gov/ (accessed January 2009). 3. A detailed explanation of the methodology used in the paper 4. US Census Bureau. Concentration ratio data are available at
2. Borenstein S, Cameron CA, Gilbert R. (1997), Do gasoline can be found in Adilov and Samavati, Pump Prices and Oil
www.census.gov/ (accessed 27 May 2008).
prices respond asymmetrically to crude oil price changes?, The Prices: A Tale of Two Directions, Atlantic Economic Journal,
EXPLORATION & PRODUCTION – VOLUME 7 ISSUE 1
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