Gasoline and Crude Oil Prices

barrels of gasoline daily—nearly half its daily consumption of all petroleum products. The average automobile tank is filled weekly, and gasoline prices are posted at every street corner where there is a gasoline station. Consequently, most U.S. consumers are very aware of move-ments in gasoline prices and closely observe the asymmetry when crude oil and gasoline prices fluctuate. Many consumers complain that gasoline prices rise more quickly when crude oil prices are rising than they fall when crude oil prices are falling, exhibiting an asymmetric relationship.1 To the naked eye, movements in spot crude oil and retail gasoline prices may lend some credence to consumers ’ com-plaints (Figure 1). Furthermore, in some instances when gasoline prices have risen sharply and swiftly following a rise in crude oil prices—such as occurred in 1999 and 2000 and during the Gulf War in 1990—consumers and politicians have called for policies to put a stop to what is seen as unfair pricing practices for petroleum products.2 Such reactions seem to stem from a popular sus-picion that large, integrated companies have monopolized the oil industry. The public seems to take the asymmetric relationship between gasoline and crude oil prices as evidence that the petroleum industry is monopolistic. Most of the previous research on the sub-ject confirms at least part of what consumers suspect: it provides econometric evidence of an asymmetric relationship between gasoline and crude oil prices. This article extends inquiry into the issue by considering competing explana-tions for the asymmetry. The available evidenc