Fed economists debunk the popular narrative of democracy around record high gas prices

Economists at the Federal Reserve in Dallas Published Analysis This week he refuted the Democrats’ popular claim against oil companies.

What do the Democrats claim?

With gas prices hitting new highs this week, the popular Democratic talking point — that oil and gas companies benefit — has been recycled into the national conversation.

New Yorker Publish an article Titled “As Gas Prices Hit New Highs, Oil Companies Are Benefiting”. The post included quotes from various Democrats, including President Joe Biden, who accuse oil companies of not spending resources to boost oil and gas production because they care more about their profit margins.

next week , The House even votes on legislation Democrats are promoting it to combat the oil industry’s alleged exploitation of consumers.

But what do economists say?

Garrett Golding and Lutz Killian, a senior economist at the Federal Reserve in Dallas, to explain That profiteering and price gouging do not contribute to the amazing price of gas.

There are two facts in particular that refute this myth. Golding and Killian explained:

  • Gas station operators set prices: “Fuel station operators set retail prices based on the expected purchase cost of the next delivery of fuel from the local distributor, federal and state tax rates, and a price tag that covers operating expenses, such as rent, delivery fees and credit card fees.”
  • Almost every gas station is owned by a company that does not produce oil: “Since only 1 percent of US service stations are owned by companies that also produce oil, US oil producers are not in a position to control retail gasoline prices.”
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Meanwhile, they explained that in March 2022, when the average price of gasoline was $4.22 per gallon, 59% of the cost was directly related to the price of oil, while 18% of the cost was oil refining, and 12% of the cost. The cost was distribution and marketing, and the remaining 12% was the tax cost.

Economists have also addressed the asymmetric nature of gas price changes.

[T]Asymmetry in the response to retail gasoline prices need not be evidence of price increases. One possible explanation is that station operators are regaining margins lost during the rally, when gas stations were initially slow to increase pump prices. The reluctance to lower retail prices is also likely to reflect concerns that oil prices – and therefore wholesale gasoline prices – may rebound quickly, affecting terminal profit margins.

Another possible reason for this discrepancy is the tendency of consumers to search more intensely for lower pump prices as gasoline prices are higher than they were when they are low. The diminishing search effort provides additional pricing power to gas stations, causing prices to fall more slowly than they rise. This has led researchers to liken the gasoline price response to high oil prices to missiles—and to the response to recurrently low oil prices.

Gas prices hit another record high on Friday. According to AAAWhen the national average gas was $4.43 per gallon.

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