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Raphael Warnock – Fact-checking Warnock’s statement that a drop in oil prices doesn’t cause major drop in gas prices

Raphael Warnock – Fact-checking Warnock’s statement that a drop in oil prices doesn’t cause major drop in gas prices

When it comes to gas prices at the pump, what goes up doesn’t necessarily come back down – at least not as fast as people think it should.

Sen. Raphael Warnock, D-Ga., made this argument in an April 5 letter to President Joe Biden.

“While the initial increase in oil prices resulted in a near instantaneous increase in gas prices for consumers, the subsequent decrease in crude oil prices has failed to meaningfully provide relief for Georgia’s families at the pump,” Warnock said.

Warnock, who is in a tough reelection fight in one of the nation’s top battleground states, pointed to data from AAA showing how gas prices remained high in Georgia in March even as oil prices had already peaked.

The price at the pump — how to bring it down and who and what is to blame for the spike — is a central theme of 2022 midterm election messaging. In November, Warnock will face the winner of the May 24 Republican primary in which former football player Herschel Walker is the frontrunner.

We took a closer look at Warnock’s assertion that crude oil prices have fallen without triggering a notable decline in gasoline prices. We found that he has a point but omits one key piece of information.

Even though prices do indeed rise faster in response to increased crude prices than they fall in response to decreased crude prices, they also do eventually go back down to levels more on par with the price of crude oil.

Gas prices started to climb before Russia’s invasion and then rose more

During the early months of the pandemic, gasoline prices cratered as more people stayed home. When travel and commutes resumed, pushing demand, the price at the pump began to rise. 

Then, in February, some countries imposed sanctions on Russian oil over the country’s invasion of Ukraine, throwing the global oil market into disarray again. With reduced supply, prices went up. In fact, gasoline prices during the first week of March 2022 were more than 50% higher than they were the first week of March 2021.

Warnock pointed to AAA figures showing that the average price for a gallon of gas in Georgia in late February was $3.40, a figure that rose by late March to $3.95. Meanwhile, Warnock also referred to figures from the U.S. Energy Administration that showed that prior to Russia’s invasion in late February, crude oil was about $92 a barrel, rising above $123 a barrel on March 8, and then falling to below $100 by April 1.

“Despite a noted decrease in the price for a barrel of oil from its previous peak, the current average price for a gallon of gas in Georgia is $3.86, a reduction of only $0.09 per gallon in a week,” Warnock wrote on April 5 to Biden.

It’s important to note that Georgia’s gas prices dropped after Gov. Brian Kemp in mid March signed a 29 cent state gas tax holiday through May 31.

Patrick De Haan, head of petroleum analysis at GasBuddy, said much of the drop in gas prices in Georgia was due to the tax holiday, but a small amount was because the price of oil was falling.

Warnock’s office pointed PolitiFact to April 5 testimony by Robert McCullough, an energy consultant to a U.S. Senate committee, on a theory about oil and gas prices called “rockets and feathers.”

“One continuing mystery concerns the inconsistent response of gasoline markets to changes in the price of feedstocks,” McCullough testified. “For example, the phrase ‘up like a rocket, down like a feather’ has often been used to describe the rapid increase in retail gasoline prices when oil prices rise, but the very slow decrease in gasoline prices when oil prices fall. The rocket/feather effect occurred recently when the price of oil increased markedly in the first week of March and then fell even more dramatically in the second week of March.”

Warnock’s office also pointed to an explanation of the “rockets and feathers” phenomenon by the Washington Post.

 

Mark Finley, a fellow in energy and global oil at Rice University’s Center for Energy Studies, told PolitiFact the “rockets and feathers” dynamic is real, but generally a short-term phenomenon. Over longer time periods — beyond a few weeks — prices at the pump tend to follow changes in crude oil prices both up and down. 

Severin Borenstein, a Berkeley professor and expert on the oil and gas industry, echoed this point: “Gasoline prices do eventually go back to the level one would expect given the price of crude oil.”

 

Matthew Lewis, an economist at Clemson University who researches gasoline markets, said Warnock’s statement is essentially on target.

One reason for the rocket/feather dynamic, experts say, is that consumers become ultra-sensitive when gas prices rise, often searching around for the best price before buying, creating a more competitive environment for gas stations, Lewis said. When oil and gas prices are rising, the stations don’t earn enough money to cover their rent, labor and other expenses. 

“Therefore, gasoline prices only increase once they are forced to by rapidly rising oil prices, at which point they increase rather quickly,” Lewis said. “Once oil and gas prices start falling, consumers will encounter prices that are lower than what they have recently observed. They tend to interpret this as a sign that they have found a relatively low-priced station, so they stop searching and purchase.”

The lack of aggressive price searching by consumers during periods when gasoline prices are falling makes station competition less intense and allows stations to charge margins large enough to start covering their other expenses again, Lewis said.  

Gas stations tend to raise their prices about two to four days after a surge in costs, said De Haan, the GasBuddy analyst. As oil costs were rising in February and March, gas stations were losing money, De Haan said.

“They lost an incredible amount of money on the way up when oil prices were surging and at the stations,” he said. They were “at best selling at or below their cost.”

The volatility of oil prices gives gas stations anxiety about cutting prices.

“They don’t want to stick their neck out too far and lower prices too quickly, because they might shoot back up and then the station is losing money again,” De Haan said. “That’s the important context here to what the senator said.”

One way to measure that volatility is to look at the number of days in which the difference between the low and high cost moved more than $8 a barrel in a single day. That happened once in 2021. So far in 2022, it has happened 16 times. 

Our ruling

Warnock said that “while the initial increase in oil prices resulted in a near instantaneous increase in gas prices for consumers, the subsequent decrease in crude oil prices has failed to meaningfully provide relief for Georgia’s families at the pump.”

Typically, when oil prices rise, gas stations raise their prices within a few days. But the drop in crude oil prices generally doesn’t lead to an instant drop at the gas pump. Experts say this “rockets and feathers” dynamic — a fast rise followed by a slow decline — is common over the short term, but over the longer term, crude oil prices and prices at the pump generally move in unison. 

We rate this statement Mostly True. 

RELATED: All of our fact-checks about gas prices 

RELATED: The race for the Georgia U.S. Senate seat: A guide

 

Source: Culled From PolitiFact.

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