OIL PRICES
177
Hurricane Rita reduced additional refining capacity causing a shutdown of 1 million barrels of gasoline production per day.
Analysis of retail gasoline pricing is complicated by large price
differences in various parts of the country. In fact, the phenomenon of prices at different market levels tending to move differently relative to each other depending on direction is known as
price asymmetry. To the public, this typically means simply the
notion that retail prices rise faster than they fall, when observed
over some period. However, there is significantly more to the question of price asymmetry than just the upward and downward
speed of retail price movements. For the most part, retail prices
move in response to changes in wholesale, or even raw material,
prices further upstream in the manufacturing/distribution chain.
Therefore, an examination of price asymmetry must consider the
speed and degree to which price changes at one level are passed
downstream ( i.e. from wholesale toward retail). In previous studies of this phenomenon, researchers have further defined two types
of price asymmetry: amount asymmetry, in which the amount of
the eventual price change differs between wholesale and retail
and/or between upward and downward movements, and pattern
asymmetry, in which the change occurs at a different rate between
market levels depending on direction.
There are two key concepts to keep in mind when analyzing a
gasoline market: asymmetry and pass-through. As noted above,
asymmetry refers to prices rising and falling at differing rates at
different levels in the pricing structure. However, the analysis is
complicated by the fact that there are lags between changes in
upstream prices and the corresponding changes in downstream
prices. The upstream price changes take time to pass-through to the
downstream prices. The pass-through times make it theoretically
possible for there to be no real asymmetry in price movements, but
because of the time lags a statistical test may show that there is
asymmetry.
For example, a very simple price change, such as a symmetrical
$0.5 per gallon upstream price increase and decrease spread over 10
weeks, can have unusual consequences because of lags. The downstream price peaks after the upstream price maximum, and it takes
longer for the downstream price to return to equilibrium than the
upstream price. Lags anywhere in the system can therefore give
the appearance that prices are sticky downward, when in fact the
apparent asymmetry is only an artifact of the lags.
177
Hurricane Rita reduced additional refining capacity causing a shutdown of 1 million barrels of gasoline production per day.
Analysis of retail gasoline pricing is complicated by large price
differences in various parts of the country. In fact, the phenomenon of prices at different market levels tending to move differently relative to each other depending on direction is known as
price asymmetry. To the public, this typically means simply the
notion that retail prices rise faster than they fall, when observed
over some period. However, there is significantly more to the question of price asymmetry than just the upward and downward
speed of retail price movements. For the most part, retail prices
move in response to changes in wholesale, or even raw material,
prices further upstream in the manufacturing/distribution chain.
Therefore, an examination of price asymmetry must consider the
speed and degree to which price changes at one level are passed
downstream ( i.e. from wholesale toward retail). In previous studies of this phenomenon, researchers have further defined two types
of price asymmetry: amount asymmetry, in which the amount of
the eventual price change differs between wholesale and retail
and/or between upward and downward movements, and pattern
asymmetry, in which the change occurs at a different rate between
market levels depending on direction.
There are two key concepts to keep in mind when analyzing a
gasoline market: asymmetry and pass-through. As noted above,
asymmetry refers to prices rising and falling at differing rates at
different levels in the pricing structure. However, the analysis is
complicated by the fact that there are lags between changes in
upstream prices and the corresponding changes in downstream
prices. The upstream price changes take time to pass-through to the
downstream prices. The pass-through times make it theoretically
possible for there to be no real asymmetry in price movements, but
because of the time lags a statistical test may show that there is
asymmetry.
For example, a very simple price change, such as a symmetrical
$0.5 per gallon upstream price increase and decrease spread over 10
weeks, can have unusual consequences because of lags. The downstream price peaks after the upstream price maximum, and it takes
longer for the downstream price to return to equilibrium than the
upstream price. Lags anywhere in the system can therefore give
the appearance that prices are sticky downward, when in fact the
apparent asymmetry is only an artifact of the lags.