Why Gas Prices Don't Fall as Fast as Oil

Rockets and feathers: the evidence

The phrase comes from economist Robert Bacon's 1991 study of UK petrol prices in Energy Economics, which found that retail prices adjusted faster to cost increases than to cost decreases. The best-known US study, by Severin Borenstein, A. Colin Cameron and Richard Gilbert, published in the Quarterly Journal of Economics in 1997, found the same pattern in US gasoline: retail prices responded more quickly to rises in crude oil prices than to falls. Many later studies confirm an asymmetry, although its size varies by country, period and how data are measured.

The key point is that the asymmetry is mostly about speed, not about prices never coming down. Over several months, retail prices usually reflect most of a lasting change in crude.

After the Strait of Hormuz closed on 28 February, WTI rose by about $28 in two weeks. The pump price rose 57 cents by 9 March and 78 cents by 16 March, more than the 67-cent rise in the crude cost per gallon. From 1 June to 6 July, WTI fell by about $26, or 63 cents a gallon of crude, but the pump price fell only 47 cents in four weeks and 53 cents in five. The gap between pump and crude cost narrowed on the way up and widened on the way down: the rocket-and-feather pattern.

Not all of the difference was retail margin. The gasoline crack spread widened sharply in 2026 as refining capacity was lost, which raised the gap between pump and crude through the year. But in June, wholesale gasoline was falling too (New York Harbor conventional gasoline averaged $3.564 a gallon in May and $3.037 in June), so the slow decline at the pump was mainly a retail effect.

Why the lag happens

1. Replacement cost and inventories

Stations and distributors price fuel on what it will cost to refill their tanks, not what they paid for the fuel in them. When wholesale prices jump, they raise prices at once to cover the next delivery. When wholesale prices fall, a station that bought at a higher price has less incentive to cut quickly, and its competitors are in the same position.

2. Consumer search

Drivers shop around more when prices are rising and in the news. When prices are falling, they search less, so a station that keeps its price up loses few customers. Matthew Lewis's 2011 study of US retail gasoline markets found that this reduced search behaviour can explain the slow pass-through of cost decreases.

3. Margin recovery

Retail margins get squeezed when wholesale prices rise quickly, as the table shows for early March 2026. Stations recover those margins when costs fall by cutting prices more slowly than costs. Over a full cycle, average margins can end up close to normal even though they swing widely.

4. Taxes are fixed per gallon

US federal and state gasoline taxes are fixed amounts, about 18.4 cents federal plus an average of 33.55 cents state in January 2026, according to the EIA. They do not fall when oil falls, so a 20% drop in crude produces a much smaller percentage drop at the pump. The effect is stronger in Europe, where taxes make up a larger share of the price.

5. Refining margins and seasons

The pump price follows wholesale gasoline, not crude directly. If refining margins widen while crude falls, because of refinery outages, a switch to summer-grade fuel or strong demand, gasoline can stay high even as oil drops. This is the main reason pump prices sometimes rise when crude is flat or falling.

How long is the typical lag?

There is no fixed number. The 2026 data above suggest that increases reach the pump within one to two weeks, while decreases take a month or more to pass through. In large, sustained moves the pump does catch up: between July and December 2008, Brent's monthly average fell from $132.72 to $39.95, about $2.21 a gallon of crude cost, and US regular gasoline fell from $4.06 to $1.69, a drop of $2.37 (EIA monthly data).

A practical rule: each $1 per barrel move in crude is worth about 2.4 cents a gallon, and in the 2026 episodes most of each move was visible at the pump within four to six weeks. To convert barrel prices yourself, use the oil price per gallon calculator. For the full breakdown of the pump price, see gasoline prices and crude oil, and for the forces behind crude itself, see what moves oil prices.