I’ve always been a bit curious about the correlation between oil and gasoline prices. In other words, when oil goes up or down, how much and when do gasoline prices change.
Through an internet search, I was able to collect the monthly prices of both oil and gas from the U.S. Energy Information Administration. They have publicly available data on the price of gas that goes back to 1991, and for oil back to 1974. Below is the graph I created that shows how the price of oil (in red) against the price of gas (in blue) since 1991.
As you would expect, the prices track each other very closely. I did notice a few interesting items from the data:
- It’s not uncommon for it to take up to 2 months for changes in the price of oil to show up at the pump. In other words, changes in the price of oil don’t normally show up immediately in the price of gasoline.
- Over the 20 years of data, the price of oil has increased approximately 5x (from $20 to $100) whereas the price of gasoline has only increased around 3.5x (from $1.10 to $3.63). I’m not sure why there isn’t a one-to-one correlation, but I’m not complaining. If the correlation was exact, we should be paying closer to $5.50 per gallon.
- Speculation in the gasoline market never seems to last long. There are a few points where there was spike in gas prices that did not correspond to a spike in oil prices, but these spikes did not last for an extended period of time (examples are May 2001 and May 2007 time periods).
My second fascination has been understanding how much influence the president has on the price of oil. The media would lead you to believe that the president has significant influence over oil prices. They also paint the Democratic Party as an enemy of the oil industry which puts downward pressure on prices, whereas the Republican Party is cozy with the oil industry and supports higher prices.
To check this hypothesis, I looked at the prices of oil and gas during the last three administrations – Clinton, Bush, and Obama. I identified the low, high, and average price of both oil and gasoline during their presidencies. Obviously, the data for Obama is not complete and only covers up to June 2013. Let’s take a peek at the data.
While there are fluctuations in prices during a president’s term, the overall trend appears to be governed by forces of supply, demand, and inflation, with occasional speculative events mixed in. My conclusion from the data: the president does not have much influence or control over the price of oil and gasoline despite what the media would lead us to believe.