Gasoline Price Changes - Federal Trade Commission

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GASOLINE PRICE CHANGES: Price (Cents per Gallon) 250 200 150 100 50 0 1991 Source: EIA 1992 Figure 3-1: Components of Nominal Retail Gasoline Prices (1991-2004) 1993 1994 1995 1996 1997 1998 Taxes Distrib./Mktg. Costs and Profits Refining Costs and Profits Crude Oil B. Crude Oil Is Generally the Largest Component of the Retail Price of Gasoline. Each of the previously discussed components contributes varying amounts to the retail price of gasoline, as shown in Figure 3-1 and illustrated in the calculations that follow. 5 The national annual average nominal price of regular gasoline from 1991 through 2004, including taxes, was $1.26 per gallon. Over that time period, crude oil on average contributed $0.51 to, or 39.4 percent of, the price of a gallon of gasoline at retail. Thus, crude oil on average was the largest component of the retail price of gasoline during that time period. From 1991 through 2004, taxes were the second largest contributor to the national annual average price of retail gasoline, on average contributing $0.37 to, or 30.3 percent of, the price of a gallon of gasoline. The contribution that taxes make varies significantly from state to state, however. 6 In addition, some local governments impose gasoline taxes. The third largest contributor, from 1991 through 2004, was distribution and marketing costs and profits, which averaged $0.20, or 16.3 percent of the nominal price of a gallon of gasoline. The fourth largest contributor to the retail price of gasoline was refining costs and profits, which average $0.18, or 14 percent of the nominal price of a gallon of gasoline. 40 1999 2000 2001 2002 2003 2004 FEDERAL TRADE COMMISSION, JUNE 2005
THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION C. The Cost of Acquiring Crude Oil Varies More Widely than the Other Major Costs. Measured on a monthly basis, the nominal cost to acquire a gallon of crude oil has ranged between a low of $0.23 in December 1998 and a high of $1.13 in October 2004. The average acquisition cost of crude oil between 1991 and 2004 was $0.51 per gallon. The standard deviation was fairly large – $0.16 per gallon. A relatively large standard deviation indicates significant variations in crude acquisition costs, with more crude acquisition costs lying further from the average of $0.51 than close to the average. See Box 3-3. Refining costs and profits have the second highest variability, with a standard deviation of a little less than $0.08 per gallon. That standard deviation is half the size of the standard deviation in crude oil, indicating that refining costs and profits have been much less variable than crude oil acquisition costs. The standard deviation for the costs of distribution and marketing is even smaller – a little over $0.05 per gallon. Finally, taxes, which contribute the second largest amount to retail prices, have the lowest standard deviation, at about $0.03 per gallon. This low variability is not surprising; most gasoline taxes are expressed in cents per gallon, not as a percentage of the price of gasoline, and gasoline taxes have changed relatively little in the last decade. Box 3-3: What Do the “Mean” and “Standard Deviation” Reveal? In statistics, the mean is the average of a number of observations of real-world 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 all of the observations 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 concept of standard deviation can be used to determine whether a particular observation of real-world data is unusual. For example, if prices of gasoline averaged $1.50, and were normally between $1.48 and $1.52, an observation of $1.51 would be expected, but an observation of $1.90 would not. The standard deviation helps to determine mathematically whether, based on the rest of the data, a particular observation is atypical. D. Increases and Decreases in Crude Oil Prices Pass through to Wholesale and Retail Prices. This section discusses studies that have examined how quickly and to what extent manufacturers and wholesalers pass on to their customers increases and decreases in the prices of inputs. As discussed above, the price of crude oil is the main factor influencing the retail price of a gallon of gasoline. Some observers perceive a “rockets and feathers” phenomenon, in which retail gasoline prices rise rapidly after a crude oil price increase, but drift downward slowly when the price of crude decreases. This phenomenon has also been labeled “asymmetric pass-through” and “asymmetric price adjustment,” meaning that retail prices rise more readily than they decrease in response to changes in input costs. CHAPTER 3: THE NATIONAL LEVEL 41
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Federal Trade Commission DEBORAH PL
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GASOLINE PRICE CHANGES: The vast ma
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GASOLINE PRICE CHANGES: $ The World
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GASOLINE PRICE CHANGES: expect incr
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GASOLINE PRICE CHANGES: Figure 3-6:
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GASOLINE PRICE CHANGES: $ Increased
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GASOLINE PRICE CHANGES: $ Since 199
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Page 55 and 56: Million Barrels per Day 0.9 0.8 0.7
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THE DYNAMIC OF SUPPLY, DEMAND, AND
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CHAPTER 5. STATE AND LOCAL POLICIES
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Percentage of Customers Lost to 1%
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Retail Price (cents per gallon) 220
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Share (Percent) 80 70 60 50 40 30 2
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Price (Cents per Gallon) 200 190 18
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6. GAO, supra note 5, at 20. 7. Id.
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Herfindahl-Hirschman Index (HHI) Th
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Gasoline Price Changes - Federal Trade Commission

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