Why Gas Prices Aren't Falling Along With Global Oil Prices
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Here's your Money Briefing for Wednesday, April 13th. I'm J.R. Whelan for The Wall Street Journal. March's inflation report showed gas prices continuing to skyrocket. Now, that came as no surprise to American drivers. But while gas prices remain near record highs, global oil prices have actually been trending a lot lower in recent weeks. So why haven't those declines trickled down to the pump?
Most gas stations in the U.S. are operated independently, and those companies have to make up for margins that they lost when oil prices rose initially. And so they do keep prices elevated over time.
Coming up, our energy reporter Colin Eaton will help us connect the dots between crude oil prices we hear so much about and the price we pay when we fill up the tank. That's after the break.
Even though global oil prices have fallen more than 20% from their recent highs, the price for gas that drivers are paying at the pump is still near record levels. So why are drivers still facing sticker shock when they go to fill up? WSJ reporter Colin Eaton covers energy markets, and he's here to break down the math for us. Colin, thank you so much for being here.
Thank you.
So Colin, can you start out by explaining some of the big forces at play here? What has pushed gas prices up so sharply in the past year?
So gasoline prices have followed the trajectory of oil prices over the past year. There's been this steady increase in prices since last year as demand has essentially outpaced supply. It's been a tighter market for both oil and for fuel. And then prices recently, last month, began shooting up higher following Russia's invasion of Ukraine. which created a lot of uncertainty about how many Russian barrels would be basically pushed out of the market by companies in the Western hemisphere. The refineries and traders have stopped taking a lot of Russian barrels. And the question is whether these barrels find their way to other markets in Asia and how large the impact is going to be in terms of oil flows globally.
So that's hanging over fuel prices. But recently, there have been signs that demand could take a hit because of lockdowns in China due to COVID-19, which could reverberate around the global economy.
Okay, so you mentioned the price of oil. This may sound like a simple question, but how is that related to the price of gas?
So gasoline is made out of oil, essentially, by refineries, dozens of refineries around the country. But it's part of this system that turns oil into gas. It is not controlled by any one company. There are thousands of companies that drill for oil. There are dozens that refine it into fuel. And then that gasoline is sold at wholesale prices. to gasoline stations, and then consumers buy it at the pump. And so at each point in that chain, companies do have some sort of influence over the price. But all these are subordinate to a global market, which is high. highly unpredictable and has been more unpredictable than in the past because, again, of Russia's invasion of Ukraine, the potential for lockdowns in China and elsewhere, and the uncertain economics around COVID-19.
But aside from a handful of states that have relaxed all or some of the sales tax on each gallon of gas, prices are still near all-time highs, and they haven't fallen in lockstep with oil. Why is that?
Well, that's because gasoline prices, the final price at the pump that you pay, is ultimately set by the gas stations themselves. Gas stations pay a price for gas from refineries, from fuel distributors, and they have to keep prices elevated above a certain level to make a margin.
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