“Yes, Sir!”

President Trump took to the Truth Social machine earlier this week to air his frustration with the petroleum industry when he demanded that “Gasoline Retailers must get their Prices down, IMMEDIATELY!”

A look at where prices stand now relative to July 4th in prior years shows that the current AAA national average price for a gallon of gas is the third highest of any year since at least 2005. The only two years when prices were higher were in 2008 ($4.10) and 2022 ($4.80). Besides the high level of prices, this year’s 35.5% YTD gain also ranks as the fourth-largest YTD increase since 2005.

Higher gas prices are one area where inflation is most noticed by the consumer, so having these price levels heading into midterms is not what anyone in office wants to see. We can certainly understand the President’s frustration, but does he have a point?

The chart below compares the change in crude oil and gasoline prices since the start of the war in late February. As of this morning, WTI crude oil prices have essentially round-tripped the gains they saw early on in the war. The same can’t be said for prices at the pump, though, as they’re still up 29% since 2/27. While crude oil prices have fallen rapidly, gas prices have been much slower to respond.

If crude oil prices remain at these levels, prices at the pump will follow. In addition to the positive correlation to oil prices, average gas prices also have a consistent seasonal tendency to decline in the second half of the year.

Are gas prices artificially high, though? Not necessarily. While they’ve been much slower to follow crude oil prices lower in the last few weeks, gas prices were also slower to respond to the rise in crude oil prices. For example, in the six weeks leading up to the peak in crude oil prices on 4/7, the average spread between the percentage gain in crude oil prices versus the increase in gas prices was 15 percentage points. Conversely, in the six weeks leading up to today, the average percentage spread between the two was also 15 percentage points but in the opposite direction.

Gas stations are an easy target when crude oil prices fall, but looking at the pattern between the two since the war started shows that they are probably just working through the same lag that cushioned the blow for consumers on the way up. With crude back to pre-war levels, a meaningful drop in prices at the pump won’t just be a reaction to the President’s demand, but the natural, lagged result of the fall in crude oil prices.

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