The Asymmetry of Gasoline and Crude Oil

Approximately 8.5 million barrels of gasoline is consumed daily in the United States. It is said that gas prices respond more quickly when crude oil prices rise than when crude oil prices fall. Market power, search costs, consumer response to changing prices, inventory management, accounting practices, refinery adjustment costs, and the behavior of markups over the business cycle are many explanations offered from economists. Crude oil prices over the past year has more than tripled. At http://www.dallasfed.org/research/efr/2000/efr0003b.pdf it said, "The cost to produce and deliver gasoline to consumers includes the cost of crude oil to refiners, refinery processing costs, marketing and distribution costs, and retail station costs and taxes." The Balke, Brown, and Yucel (BBY) found that the shocks to crude oil and gasoline prices originate with supply rather than demand.
Borenstein, Cameron, and Gilbert (BCG) used weekly and biweekly data from 1986 to 1992, for their studies, in a series of bivariate error-correction models to test for asymmetry in price movements between gasoline’s various stages of production and distribution. They have found strong and pervasive evidence of asymmetry with this study.
The remaining explanations for the asymmetry suggest that policies to prevent an asymmetric relationship between gasoline and crude oil prices are likely to reduce economic efficiency.