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PRICES AND SPENDING

As crude oil plunges, retail gasoline 

margins spike, then retreat

By Jeff Rubenstein and Michael Conforti

During the second half of 2014, a rapid decline in crude oil prices had consumers rejoicing at the gas pump. What 

they may not have realized though, is that gasoline stations also benefited from the decline in crude oil prices. 

During this period, the Producer Price Index (PPI) for automotive fuels and lubricants retailing showed a sharp rise 

in retail margins, peaking in December 2014. However, in early 2015, as crude oil prices stabilized at a new lower 

level, retail margins for gasoline declined.

To provide a better understanding of what goes on behind the scenes in the domestic retail market for gasoline, 

the Bureau of Labor Statistics calculates the PPI for automotive fuels and lubricants retailing. This index measures 

the average change in margins that gas stations receive for selling products such as gasoline and motor oil. 

December 2015 | Vol. 4 / No. 13
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Margins are calculated by subtracting the price at which retailers purchase fuel (the wholesale price of fuel) from 

the price at which they sell it (the retail price of fuel), reflecting the price for the value added through retail 

distribution.1

This Beyond the Numbers article explores how margins for gasoline retailing were influenced by the price 

changes in crude oil and retail gasoline from the second half of 2014 through early 2015. It reveals that gasoline 

stations delayed fully passing along lower prices to consumers.

Price comparison

Chart 1 compares the PPI margin-based index for automotive fuels and lubricants retailing, West Texas 

Intermediate (WTI) spot oil prices, and retail prices for gasoline from January 2011 through June 2015.2The most 

significant increases in margins occurred in October and December of 2014 (26 percent and 15.4 percent, 

respectively). The Energy Information Administration (EIA) reported significant price declines in October and 

December for WTI crude oil (9.5 percent and 21.8 percent, respectively) that outpaced the average decline in retail 

gasoline prices (6.6 percent and 12.2 percent, respectively). As a result, in the fourth quarter of 2014 the 

automotive fuels and lubricants retailing index increased 41.0 percent, while WTI crude oil fell 36.4 percent and 

retail prices for gasoline declined 24.5 percent.
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Chart 2 illustrates the same datasets as chart 1, however, to reduce volatility in the margin-based PPI for 

automotive fuels and lubricants retailing and better reflect medium- to long-term trends in that data series, it is 

presented using a 3-month moving average.
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By employing a 3-month moving average to smooth the volatility in the margin index, a moderate inverse 

relationship between retail margins and prices for crude oil and gasoline becomes more apparent. During periods 

of falling prices for crude oil and retail gasoline, declines in crude oil generally outpaced decreases in selling prices 

at the pump, resulting in a jump in retail margins. When prices for crude oil and retail gasoline rose, retail margins 

often declined. From January 2011 through January 2014, margins returned to relatively similar levels (with a 

slightly increasing long-term trend) despite large month-to-month movements. However, between June 2014 and 

January 2015 a dramatic increase in margins for automotive fuels occurred while prices for both crude oil and retail 

gasoline declined.

Although crude oil costs play a major role in prices consumers pay at the pump, they represent only a portion of 

the entire retail price of fuel. According to the EIA, crude oil costs represented 68 percent of retail gasoline prices 

in 2013.3 Differences in crude oil and retail gasoline price movements also can be explained by other reasons, 

such as pass-through delays (delays in the transmission of price movements though the various stages of 

production and distribution), wholesale distribution costs, refinery costs, and local competition.
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Differing price trends

Pass-through delays contribute to the inverse relationship between retail automotive fuel margins and prices for 

crude oil and retail gasoline. Gas stations tend to raise retail prices gradually in response to increasing wholesale 

prices. Similarly, gasoline prices at the pump typically decline at a slower rate over time in response to falling 

wholesale prices. (In chart 1, pass-through delays are apparent where prices for WTI spot oil peak.) This delay in 

passing along wholesale price changes to consumers typically results in lower margins during periods of rising 

crude oil prices and higher margins during periods of declining crude oil prices. The price of crude oil is volatile, 

and significant price changes take time to work their way through the refining and distribution sectors before 

reaching consumers.

Although pass-through delays are ever-present, they do not explain why price declines are passed along more 

slowly than price increases. One explanation from the Association for Convenience and Fuel Retailing is that 

wholesale prices, local competition, and consumer behavior contribute to this behavior.4 The pass-through delays 

caused by the time it takes to refine and distribute product provides retailers with an added layer of protection from 

short-term price shocks. In addition, price-conscious consumers and local competition may lead to retailers 

adjusting retail prices gradually to avoid price shocks to consumers. Under this gradual price assumption, retailers 

receive smaller margins when wholesale costs increase and larger margins when wholesale costs decline. With 

this pricing approach, retailers can recoup lost profits from prior wholesale price advances by delaying retail price 

declines during periods of falling crude oil prices.

The second position, commonly referred to as the “rockets and feathers” phenomenon, was noted recently by 

researchers at the St. Louis Federal Reserve Bank.5 This theory argues that wholesale price delays and imperfect 

local competition largely contribute to the difference in pass-through speed during crude oil price increases and 

declines. Rising crude oil prices quickly push up wholesale gasoline prices, and as a result, retailers rapidly 

increase their prices to preserve their narrow margins and maintain profits. This direct pass-through of wholesale 

price increases results in a rapid rise in the retail prices consumers pay for gasoline. The speed of the increase is 

compared to that of rockets lifting off. Conversely, during periods of declining crude oil prices, some retailers can 

hold on to higher margins due to limited local competition and therefore have less incentive to pass along lower 

prices to consumers. This slow pass-through of price declines is compared to feathers drifting slowly to the ground.

Conclusion

The large decreases in prices for crude oil and retail gasoline, combined with the substantial increase in the 

margin-based PPI for automotive fuels and lubricants retailing in the second half of 2014 and early 2015, support 

the existence of a noticeable delay in the passing along of lower prices to consumers. The spike and slow retreat 

of retail margins for automotive fuels during this period resembles the “feathers” scenario. Eventually, if this 

situation holds and crude oil prices stabilize at a lower level, margins for automotive fuels should return to the 

general long-term trend of the index. The PPI measure tracking the average changes in margins received by 

gasoline stations may provide counterintuitive results at first glance. However, by looking at the various pieces the 

authors hope that this article provides some understanding of the relationship among crude oil prices, refinery 

prices, wholesale distribution prices, and the retail pump prices.
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This Beyond the Numbers article was prepared by Jeff Rubenstein and Michael Conforti, economists in the Division of Producer 

Prices and Price Indexes, Office of Prices and Living Conditions, U.S. Bureau of Labor Statistics. Email: conforti.michael@bls.gov; 

telephone: (202) 691-7728. 

Information in this article will be made available to sensory-impaired individuals upon request. Voice phone: (202) 691-5200. Federal 

Relay Service: 1-800-877-8339. This article is in the public domain and may be reproduced without permission.

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NOTES

1 In contrast to all other good-producing industries and most service-providing industries, establishments engaged in wholesale and 

retail trade purchase goods primarily for direct resale to other businesses and consumers. The PPI views wholesalers and retailers as 

suppliers of distributive services (rather than goods), because little, if any, transformation of these goods takes place. This approach 

implies that the output of a wholesale or retail trade establishment is represented by the difference between its selling price of a good 

and the acquisition price for that same item. As a result, for the trade sector the PPI tracks the average changes in gross margins

received by wholesalers and retailers. Gross margins reflect the value added by the establishment for services such as marketing, 

storing, and displaying goods in convenient locations and making the goods easily available for customers to purchase. Margin is 

defined as the price at which a retailer sells a good, less the current acquisition price of that same good. For more on margin prices in 

the PPI, see “Wholesale and retail Producer Price Indexes: margin prices,” Beyond the numbers: prices and spending, vol. 1, no. 8 

(U.S. Bureau of Labor Statistics, August 2012, https://www.bls.gov/opub/btn/volume-1/wholesale-and-retail-producer-price-indexesmargin-prices.htm.

2 Cushing, OK WTI Spot Price FOB (Dollars for Barrel), U.S. Energy Information Administration (U.S. Department of Energy, October 

7, 2015), http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=M, and U.S. All Grades All Formulations Retail 

Gasoline Prices, U.S. Energy Information Administration (U.S. Department of Energy, October 5 2015), http://www.eia.gov/dnav/pet/

hist/LeafHandler.ashx?n=PET&s=EMM_EPM0_PTE_NUS_DPG&f=M.

3 The Price per Gallon (NACS, The Association for Convenience and Fuel Retailing, October 13, 2015), http://www.nacsonline.com/

YourBusiness/FuelsReports/2014/Prices/Pages/The-Price-Per-Gallon.aspx.

4 Gas Prices: Rockets and Feathers (NACS, The Association for Convenience and & Fuel Retailing, October 13, 2015), http://

www.nacsonline.com/YourBusiness/FuelsReports/2015/Prices/Pages/Gas-Prices-Rockets-and-Feathers.aspx.

5 Michael T. Owyang and E. Katarina Vermann, “Rockets and Feathers: Why Don’t Gasoline Prices Always Move in Sync with Oil 

Prices?” The Regional Economist, (Federal Reserve Bank of St. Louis, October 2014), https://www.stlouisfed.org/publications/

regional-economist/october-2014/rockets-and-feathers-why-dont-gasoline-prices-always-move-in-sync-with-oil-prices.
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SUGGESTED 

CITATION

Jeff Rubenstein and Michael Conforti, “As crude oil plunges, retail gasoline margins spike, then retreat,” Beyond the Numbers: Prices 

and Spending, vol. 4, no. 13 (U.S. Bureau of Labor Statistics, December 2015), https://www.bls.gov/opub/btn/volume-4/as-crude-oilplunges-retail-gasoline-margins-spike-then-retreat.htm