Gasoline Price Changes - Federal Trade Commission

GASOLINE PRICE CHANGES:
Second, regions with less easy access
to gasoline supplies may experience more
variability in gasoline prices, because they are
less able to find substitute gasoline in the
event of a refinery or pipeline outage or other
supply disruption. Of course, it also may be
that both factors combine to increase gasoline
price variability.
To address some of consumers’
questions about the variability of gasoline
prices, the FTC staff collected and analyzed
data, focusing on the questions below. This
section reports staff’s findings.
1. Gulf Coast boutique fuel
gasoline prices are not more
variable than conventional
gasoline prices on the Gulf
Coast.
To analyze whether boutique fuel
gasoline prices are more variable than
conventional gasoline prices on the Gulf
Coast, the staff used “gross product margins,”
which eliminate some of the possible sources
of gasoline price volatility other than
boutique fuels. “Gross product margins” are
the differences between spot prices for
gasoline prices and crude oil prices.
Examining this difference, rather than
Box 4-3: How to Measure Price Variability:
Standard Deviations and the Mean
As noted in Chapter 3, see Box 3-3, the mean is
the average of a number of observations of realworld
data. For example, the mean of $1.48 and
$1.52 is $1.50. That same number – $1.50 – is
also the average of $1.00 and $2.00, however. To
show such differences, statisticians calculate the
“standard deviation,” which measures how close
to the mean individual observations are. If the
observations generally are very close to the mean,
then the standard deviation will be small. If the
observations are spread over a larger range
around the mean, the standard deviation will be
larger.
The standard deviation can measure how gasoline
prices are dispersed around the mean of gasoline
prices in a particular area and, thus, can measure
the variability of gasoline prices. A small
standard deviation means lower variability; a
larger standard deviation means greater
variability. In addition, an “F” statistic can test
whether the standard deviations in different areas
are significantly different in statistical terms or
within the range of differences that might
normally be expected. Thus, the “F” statistic can
show whether different areas have statistically
significant differences in the degree of gasoline
price variability that they experience.
gasoline prices themselves, removes the variability that changes in crude oil prices can cause.
To remove that variability is important, because, as discussed in Chapter 2, changes in crude oil
prices explain most of the changes in gasoline prices. In particular, the staff analyzed the
difference between weekly average spot prices for gasoline and West Texas Intermediate (WTI)
crude oil. The analysis compares gross product margins on the Gulf Coast for three types of
boutique fuel, as well as for RBOB, with gross product margins for conventional gasoline. A
focus on the Gulf Coast, the center of much refining capacity, largely removes pipeline
disruption as a source of variability and brings the focus more clearly onto price variability in
relation to refineries.
Table 4-2 compares the variability in gross product margins for various types of boutique
gasoline for the Gulf Coast over various times ranging from January 2002 through December
2004, with the variability in gross product margins for conventional gasoline. Prices are not
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FEDERAL TRADE COMMISSION, JUNE 2005