Why prices at the pump are slow to follow oil lower
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President Trump's attempt to strike a deal with Iran was supposed to quickly cut U.S. gasoline prices. It's a slower process than he might like.
Why it matters: American anger over gas prices has hammered Trump's approval rating on the economy, imperiling GOP control of Congress.
Driving the news: Trump has called for a Department of Justice investigation into oil companies, accusing them of gouging.
- "The big Oil Companies are not dropping their price at the pump commensurate with the sharply lower prices they are paying for Oil," Trump wrote on Truth Social.
The big picture: He's not wrong.
- From early April peaks, U.S. crude oil was down roughly 36% through Tuesday. Brent, the global benchmark, was down about 44%.
- U.S. gasoline prices are down too, but not as much, with the national average all-grade price of a regular gallon down about 12.5% from its recent peak of $4.63 in mid-May to $4.05 this week, according to the EIA.
How it works: Retail gasoline prices typically take a while to drop after shooting up, a phenomenon known as "rockets and feathers." (That is, gas prices go up like a rocket, but drop slowly and gently, like a feather.)
- From the perspective of those selling gas, this makes perfect sense, as they capture fatter profit margins when wholesale prices fall but retail prices stay elevated.
What they're saying: Some analysts think it could take some time for the decline in global crude prices to pass through to consumers, given the way the war jolted the markets.
- In a note published late Tuesday, Goldman Sachs analysts saw "limited relief to refined products margins from Hormuz reopening. While crude prices declined by over $10 following the U.S.-Iran interim peace deal announcement, refined products margins have fallen less, with our global refined products margins index still double its pre-war level."
State of play: Considering we're entering the start of the summer driving season, gasoline stockpiles remain quite low at the moment, Goldman says.
- That reflects the fact that many refineries shifted to producing jet fuel and diesel over the last few months to capture soaring prices in those products.
- "As demand ramps into the summer driving season, we see increasing risk of supply tightness. With refiners prioritizing jet fuel and diesel production, we believe it may be challenging to source the additional ~500 mb/d of gasoline required to meet seasonal demand, raising the likelihood of localized shortfalls," UBS analysts wrote.
The bottom line: The president might not like it, but gas prices could float like a feather for a bit longer.
