A Rant about the Price of Gas, Part II: Live Experiment

I spent 33 years in oil and gas exploration, so I have a completely different set of prejudices than you. I doubt a discussion between us would prove to be fruitful, so let’s try AI

I asked ChatGPT, “Why does the price of gas go up faster than it goes down?” The reply follows:

The price of gasoline tends to rise quickly but fall slowly due to a combination of market dynamics, psychology, and industry practices. This phenomenon is often referred to as “rockets and feathers” pricing: prices shoot up like rockets and drift down like feathers.
 
Here’s why that happens:
 
⛽ 1. 
Wholesale vs. Retail Price Lag
 

• When oil prices rise, gas stations pay more for their next shipment of fuel. To protect their slim margins, they raise prices immediately.
• When oil prices fall, stations typically sell through their more expensive inventory first, delaying price cuts to avoid losses.

  
🏪 2. 
Station Competition & Pricing Behavior
 
 

• When prices rise, all stations tend to move up together to match wholesale increases.
• But when prices fall, competition among stations is weaker: no one wants to start a price war by cutting prices too early or too much.

 
💼 3. 
Market Power & Retail Strategy
 
 

• Refineries and wholesalers may increase wholesale prices rapidly when crude oil goes up, but they’re slower to pass along savings.
• Gas stations, especially branded ones (Shell, Exxon, etc.), may have less flexibility due to contracts or supply agreements. 

 
🧠 4. 
Consumer Perception & Inelastic Demand
 
 

• Gas is a necessity for most drivers. Demand doesn’t drop much when prices rise, so companies know they can raise prices without losing many customers.
• But if prices drop, they gain no competitive advantage unless the drop is big enough to attract attention.

 
🌎 5. 
Global Factors & Speculation
 
 

• Crude oil markets react instantly to news, like geopolitical tensions or supply cuts.
• That speculation immediately spikes prices, but removing uncertainty doesn’t always create an equal downward push.

  
In Short:
 
 
Gasoline prices go up faster than they go down because:
 

• Sellers respond proactively to costs and cautiously to savings,
• There’s asymmetry in competition and consumer behavior,
• And global market volatility often pushes prices up faster than market stability brings them down.

End ChatGPT