Commentary: Why do gas prices rise so sharply and fall so slowly? Blame gas stations — and yourself

Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:

It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.

The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.

The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.

Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.

The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.

They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.

That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.

The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.

They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.

“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.

The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.

It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.

When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.

Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.

It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.

Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”

That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.

The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.

“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”

It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.

But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.

The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.

California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.

Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.

What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.

In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.

Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:

It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.

The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.

The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.

Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.

The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.

They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.

That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.

The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.

They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.

“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.

The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.

It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.

When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.

Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.

It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.

Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”

That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.

The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.

“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”

It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.

But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.

The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.

California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.

Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.

What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.

In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.

Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:

It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.

The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.

The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.

Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.

The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.

They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.

That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.

The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.

They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.

“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.

The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.

It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.

When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.

Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.

It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.

Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”

That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.

The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.

“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”

It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.

But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.

The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.

California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.

Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.

What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.

In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.

Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:

It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.

The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.

The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.

Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.

The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.

They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.

That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.

The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.

They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.

“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.

The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.

It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.

When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.

Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.

It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.

Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”

That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.

The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.

“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”

It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.

But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.

The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.

California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.

Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.

What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.

In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.

Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:

It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.

The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.

The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.

Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.

The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.

They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.

That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.

The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.

They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.

“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.

The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.

It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.

When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.

Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.

It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.

Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”

That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.

The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.

“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”

It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.

But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.

The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.

California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.

Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.

What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.

In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.

Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:

It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.

The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.

The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.

Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.

The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.

They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.

That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.

The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.

They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.

“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.

The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.

It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.

When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.

Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.

It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.

Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”

That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.

The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.

“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”

It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.

But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.

The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.

California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.

Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.

What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.

In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.

Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:

It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.

The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.

The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.

Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.

The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.

They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.

That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.

The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.

They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.

“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.

The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.

It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.

When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.

Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.

It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.

Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”

That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.

The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.

“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”

It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.

But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.

The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.

California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.

Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.

What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.

In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.

Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:

It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.

The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.

The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.

Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.

The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.

They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.

That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.

The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.

They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.

“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.

The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.

It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.

When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.

Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.

It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.

Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”

That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.

The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.

“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”

It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.

But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.

The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.

California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.

Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.

What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.

In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.