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Supply, demand, and consumer gasoline prices

[Chart data—TXT]

Over the same period, the average price of gasoline increased 36.3 percent, indicating that price changes within the gasoline market can substantially affect consumers’ spending. 

Conventional reasoning suggests that the high level of volatility for gasoline prices is the result of supply forces, as the price of crude petroleum changes rapidly due to production decisions of the Organization of Petroleum Exporting Countries (OPEC) nations. However, shifts in demand also can cause variations in gasoline prices. 

Historically, price changes for consumer gasoline have been driven by changes in supply as opposed to demand. In all recent cases, interruptions in the supply of crude petroleum resulted in significant increases in the prices of crude petroleum, wholesale gasoline, and consumer gasoline. However, changes in demand affected gasoline prices only marginally.

The data in the chart are from the Consumer Expenditure Survey program; these and other data are analyzed in “Consumer gasoline prices: an empirical investigation,” Monthly Labor Review, July 2003.