As the price of oil continues to plummet, I am confused by the retail gas prices I see posted at my local gas stations. Intuitively it feels that the record lows in oil should be yielding lower prices at my pump. I’ve been contemplating this for the past few months when I decided to finally do some research. You can too at the U.S. Energy Information Administration’s website (EIA.gov). That’s the source of all information found below.
First, I decided to create a line chart of oil (West Texas Intermediate-Oklahoma & Brent-Europe (left axis)) and gas (U.S. regular conventional retail gasoline(right axis)) prices for the past ~16 years. This yielded this beauty:

I was actually surprised to find that all prices looked fairly tightly correlated, but I know looks can be deceiving so I ran decade by decade correlations on the prices (starting at 2010):






What I (kind of) found from doing this comparison is that when WTI and Brent are closely correlated, gasoline prices tend to be more closely correlated to oil. However, this is not exactly an absolute rule, and it certainly doesn’t help to answer my question. Did gasoline go down commensurately with the price of oil? (I still thought the charts were pretty cool though). So the next step was to look at historical instances of oil prices falling within the $30-40/bbl range: When I performed this comparison I found this:
Year |
# of months $30-40/bbl WTI |
Average gas price |
2000 |
5 |
$1.52 |
2001 |
|
|
2002 |
|
|
2003 |
9 |
$1.51 |
2004 |
5 |
$1.71 |
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
1 |
$1.89 |
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
2015 |
1 |
$1.95 |
2016 |
1 |
$1.84 |
What I take from this chart is that from 2009 to present, oil prices between $30-40/bbl was extremely uncommon (only 3 out of 96 months). However, when this pricing range did occur the retail gas price was roughly the same as it is today. Meanwhile between 2000-2004, $30-40/bbl oil occurred in 19 of the 60 months. During these much more frequent occasions, retail gas was $0.44 to $0.13 per gallon cheaper than it is today! So what I take from this is when anomalously low oil pricing occurs, the gas prices don’t fully adjust to account for it. However, if oil remains depressed for multiple months, then I expect my gas to drop at least $0.13!