From Hassan Yilmazkudai, “The Transmission of Oil Prices to Consumer Prices: Evidence from Weekly U.S. Data”, Fcoming soon International Monetary Fund:
PG [Pass through into gasoline] Only after a week of shocks in oil prices was about 13% (meaning that doubling the price of oil caused gasoline prices to rise by about 13%), rose to 24% a month later, and 37% after three months. PG’s long-term estimate is about 50% (measured after five years), which is consistent with oil’s share of gasoline retail prices (payable at gas stations according to EIA). About 26% of this long-term estimate was realized only one week after the oil price shock, about 47% were realized a month later, and about 99% were realized about a year later, indicating that the impact of oil prices is relatively low. This is reflected in gasoline prices in a short period of time. The 68% confidence interval highly supports these estimates.
The author also estimated the impact on consumer prices.
source: Yilmaz Kuday (2021).
The price of WTI has roughly doubled in the past year; using the estimated pass-through, the price of gasoline should increase by about $1 (0.5 x 100% x $2 = $1). The price of traditional gasoline has risen from about US$2 to US$3.30.
The recent drop in oil prices will eventually put downward pressure on gasoline prices.
For a breakdown of the cost per gallon of natural gas as of September 2021, please refer to this U.S. Department of Energy Environmental Impact Assessment Infographic (HT call).
