Hiltzik: The return of the rocket

Key Points:

• The "rocket-and-feathers" hypothesis explains why gasoline prices rise rapidly when crude oil prices surge but fall slowly when crude prices decrease, a pattern expected to become more evident amid ongoing tensions in the Strait of Hormuz and fluctuating oil prices.
• Gasoline demand is relatively inelastic, meaning consumers have limited ability to reduce usage or switch fuel grades, which contributes to the persistence of high pump prices even after crude prices drop.
• Research by economist Severin Borenstein and others confirms that retail gasoline prices respond faster to increases in crude oil prices than to decreases, with much of the asymmetry occurring at the retail level due to pricing strategies and consumer behavior.
• Consumer search behavior influences price adjustments: during price spikes, consumers actively seek lower prices, prompting stations to raise prices quickly, but when prices fall, reduced consumer search leads to slower price decreases.
• Regional factors such as refinery capacity, local market competition, and state-specific regulations (e.g., California’s refinery constraints and gas taxes) further affect gasoline price dynamics, causing prices to remain elevated long after crude oil prices have stabilized.