U.S. Economy: What's Up at the Pump? - Expand Your Insight

"Gasoline and Crude Oil Prices: Why the Asymmetry?" Economic and Financial Review, Third Quarter 2000 (Text or PDF)

"Do Rising Oil Prices Threaten Economic Prosperity?" Southwest Economy, Nov/Dec 2000 (Text or PDF)

U.S. Economy
What's Up at the Pump?

Stephen P. A. Brown looks at gasoline prices—where they are and what we might expect in the next few months.

During April, the spot price for gasoline rose more than 30 cents per gallon—breaking away from its historical relationship with the price of crude oil. Low inventories of gasoline—the result of a late switch away from heating oil and a lack of refinery capacity—led to the sharp rise. By the first week of May, however, gasoline inventories increased and the outlook for refinery production improved. The futures markets show the price gap narrowing over the summer and closing by midautumn.

NOTE:
The spot price (blue line) and futures prices (dashed blue line) for gasoline are for regular unleaded gasoline delivered in the New York harbor and exclude taxes, transportation charges, and wholesale and retail markups. The spot price (gold line) and futures prices (dashed gold line) for West Texas Intermediate (WTI) crude oil are for delivery of that grade of crude oil to Cushing, Oklahoma. These spot and futures prices are established in daily trades on the New York Mercantile Exchange.

Prior to the rise in inventories, many analysts had predicted that the average retail price of gasoline in the United States could rise above $2 per gallon during the peaks of the summer driving season. It averaged $1.63 in the last week of April.Even with the outlook for gasoline prices easing, environmental regulation has greatly increased the regional fractionalization of U.S. gasoline markets, and sharply higher prices could occur in any region that has an unexpected refinery outage.

The spot price of gasoline that complies with California emissions standards temporarily rose by 7 cents per gallon the day after a fire at the small Tosco refinery in Carson, California—even though the fire did not affect the refinery's ability to produce gasoline.

Some industries—such as airlines and trucking—are hurt by higher prices for refined products, but strong prices for refined products should have a net beneficial effect on the Eleventh District economy as long as it exports refined products to other states.

Stephen P. A. Brown is director of energy economics and microeconomic policy analysis at the Federal Reserve Bank of Dallas.

SUGGESTED CITATION:
Brown, Stephen P. A. (2001), "What's Up at the Pump?," Federal Reserve Bank of Dallas Expand Your Insight, May 17, http://www.dallasfed.org/eyi/usecon/0105gas.html