Although crude oil prices have dropped substantially in the last month, drivers in the United States still experience sticker shock at the pump.
Crude oil has fallen more than $20 per barrel (or almost 20%) since its March peak. GasBuddy, which tracks fuel prices, reports that gas prices are still high at $4.11 per gallon at stations in the U.S. This means that prices at the pump have dropped by about 5%.
Why isn’t crude oil savings translating into price relief for drivers
“It seems strange, but it is something economists expect and have studied long enough to understand,” stated Ben Storrow, a reporter at E&E News, an outlet that covers energy.
Gas stations wait to raise their prices when crude oil prices rise. This is to avoid scaring away customers.
CBS News’ Storrow said that “but then they once they start to increase prices, they raise these very quickly.”
Gas stations can also lower their prices as crude oil prices drop. He explained that this allows them to make a profit from the difference between what they pay and what they charge motorists.
They will reduce the pump prices more slowly if the crude oil price drops. Storrow stated that this is where most gas stations make their money.
When will gas prices fall?
The market imbalance has caused the gasoline price to rise over the past year. The economic recovery after COVID-19 shut downs has fueled increased demand, which is harder to replenish.
“Demand is growing faster than supply,” Storrow said. Storrow stated that it takes time to get drilling equipment out into the field and oil flowing.
Some relief could be on the horizon.
According to Bloomberg News, the shutdown of Shanghai caused by a COVID-19 epidemic has reduced China’s oil consumption by more than one million barrels per day. China’s rising cases of COVID-19 are fueling fears about a shutdown in Beijing, which could further reduce oil demand.
Storrow stated that this might help to ease some market tightness.
However, it may not provide immediate relief for American motorists.
Predicting oil prices can be a difficult business. Storrow said that he didn’t know how fast that would move through the system, nor would consumers see it at the pump.
According to the U.S. Energy Information Administration, prices are expected to average around $3.80 per year.