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The Spring of 1996 and 1997 provides an excellent example of contrasting gasoline market dynamics. In 1996, tightening crude oil markets pushed up gasoline prices sharply, adding to normal seasonal price increases; in 1997, crude oil markets loosened, bringing prices down. This report, illustrated with charts and tables, summarizes and contrasts the events of the two Springs, taking a deeper look at recent changes in the gasoline supply. It also examines California's almost isolated market, exploring gasoline price behavior by class of trade across regions. Also provides an in-depth look at some of the features of gasoline prices.
The springs of 1996 and 1997 provide an excellent example of contrasting gasoline market dynamics. In spring 1996, tightening crude oil markets pushed up gasoline prices sharply, adding to the normal seasonal gasoline price increases; however, in spring 1997, crude oil markets loosened and crude oil prices fell, bringing gasoline prices down. This pattern was followed throughout the country except in California. As a result of its unique reformulated gasoline, California prices began to vary significantly from the rest of the country in 1996 and continued to exhibit distinct variations in 1997. In addition to the price contrasts between 1996 and 1997, changes occurred in the way in which gasoline markets were supplied. Low stocks, high refinery utilizations, and high imports persisted through 1996 into summer 1997, but these factors seem to have had little impact on gasoline price spreads relative to average spread.
This report examines a recurring question about gasoline markets: why, especially in times of high price volatility, do retail gasoline prices seem to rise quickly but fall back more slowly? Do gasoline prices actually rise faster than they fall, or does this just appear to be the case because people tend to pay more attention to prices when they`re rising? This question is more complex than it might appear to be initially, and it has been addressed by numerous analysts in government, academia and industry. The question is very important, because perceived problems with retail gasoline pricing have been used in arguments for government regulation of prices. The phenomenon of prices at different market levels tending to move differently relative to each other depending on direction is known as price asymmetry. This report summarizes the previous work on gasoline price asymmetry and provides a method for testing for asymmetry in a wide variety of situations. The major finding of this paper is that there is some amount of asymmetry and pattern asymmetry, especially at the retail level, in the Midwestern states that are the focus of the analysis. Nevertheless, both the amount asymmetry and pattern asymmetry are relatively small. In addition, much of the pattern asymmetry detected in this and previous studies could be a statistical artifact caused by the time lags between price changes at different points in the gasoline distribution system. In other words, retail gasoline prices do sometimes rise faster than they fall, but this is largely a lagged market response to an upward shock in the underlying wholesale gasoline or crude oil prices, followed by a return toward the previous baseline. After consistent time lags are factored out, most apparent asymmetry disappears.