Business
Commentary: Blame gas stations — and yourself — for the rise and fall of gas prices
Here’s the name for an economic phenomenon that consumers are going to be hearing a lot more in the coming weeks and months:
It’s the rocket-and-feathers hypothesis, which concerns why gasoline prices rise so quickly (i.e., like a rocket) when oil prices surge and drift downward oh so slowly (like feathers) when crude prices come back to earth.
The pattern is certain to become ever more obvious as oil prices continue to oscillate in response to President Trump’s Iran war and the effect of constrictions in the volume of crude moving through the Strait of Hormuz.
The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases.
— Borenstein et al (1997)
The price of crude oil, which had settled at about $60 a barrel before Trump ratcheted up his anti-Iran rhetoric in February, has reached as high as about $113 after the conflict began, but fell below $96 during the day Wednesday as talk emerged of a possible peace deal.
Meanwhile, the average price of gasoline has soared relentlessly, reaching a nationwide average Wednesday of about $4.54 per gallon of regular, according to AAA. That’s up 12 cents from a month ago and higher by $1.38 from a year ago. So the pace at which pump prices return to those halcyon days before Trump’s saber-rattling is certain to be top of mind for consumers nationwide — and globally — if and when tensions ebb in the strait.
The economics of gasoline play a unique role for most households. That’s largely because gasoline demand is relatively inelastic, in economic parlance: It’s hard for many people to reduce their consumption when prices rise, because they still have to commute to their workplace and perform the same daily chores that require auto travel.
They can move down to a lower grade of fuel, but their options to do so are limited compared with the choices they can make at, say, the supermarket, where they can respond to a surge in the price of beef by choosing a cheaper cut or a cheaper protein.
That makes it useful to understand what drives gasoline prices higher or lower. Let’s take a look.
The academic bookshelf groans with the weight of studies of the phenomenon, but the seminal analysis of the topic remains a 1997 paper by economist Severin Borenstein of UC Berkeley and his colleagues.
They looked at how crude oil prices affected profit margins at several points in the crude-to-pump voyage of oil to gas, including crude supplies to the wholesale market and wholesale to retail. They found signs of rocket-and-feather price changes at all points, but for the layperson their general conclusion was this: It’s not your imagination.
“The evidence … supports the common belief that retail gasoline prices respond more quickly to increases in crude oil prices than to decreases,” Borenstein and his colleagues wrote in 1997.
The phenomenon is still “alive and well,” Borenstein told me Wednesday, adding that “much of this is a retail pricing phenomenon,” meaning that much of the explanation can be found at your corner gas station.
It can also be found in consumer behavior. Specifically, the inclination of consumers to search for lower prices during a spike. When prices are going up, consumers may see a high price at a particular gas station and think it’s an outlier, so they look for alternatives — even if all stations are raising prices. “They think they’ve found a bad deal, when in reality all prices are high,” says economist Matthew S. Lewis of Clemson University, who studies consumer search behavior.
When prices are falling, Lewis told me, consumers lose their incentive to search because they find prices that are similar to what they’ve expected. “Once everyone’s lowered their prices a little bit, that takes away their incentive to lower them further because no one is looking around for lower prices” and further reductions won’t win gas stations any new customers. “Everyone’s happy at the first station they stop at,” Lewis says.
Retailer profit margins are chronically slim — and during rapid crude price increases even negative — giving them an incentive to raise prices quickly as the cost of crude and of refined gas mounts — and to try to hold the higher prices steady to recover their margins as their other costs call.
It’s also true that consumers become more sensitive to higher prices because press coverage makes the price hikes inescapable, and less so as prices fall, even if they don’t fully return to earlier levels. Just now, as it happens, the price of gasoline receives front-page coverage and is flashed almost minute by minute on cable news shows.
Lewis points out, however, that “there’s a strong asymmetric pattern in press coverage too. As prices are going up, that’s talked about a lot, and as prices start to fall the coverage goes down and down, and people’s attention does too.”
That brings us to the factors affecting the price of gasoline. The cost of crude oil is known as the spot price — the price quoted by traders on the open market. By the time the oil reaches consumers as gasoline at the pump, it has changed hands several times — at refineries, regional terminals and local distributors.
The analysis by Borenstein and his colleagues found most of those markets to be reasonably competitive — that is, their prices adjusted quickly to changes in crude prices. But asymmetry — prices rising fast but falling slowly — increased as the refined product made its way to city distribution terminals and subsequently to retail stations. It’s the latter that have the most incentive to raise prices quickly and to stick with them the longest.
“Asymmetry in price adjustment is a retail thing,” Lewis says, “which is what you’d expect if the source is consumer search rather than collusion.”
It can be difficult to pinpoint the factors reflected in retail gas prices because they differ among regions. After Hurricanes Katrina and Rita laid waste to drilling, transport and refining facilities around the Gulf of Mexico coast in 2005, gas prices soared in the South, Midwest and along the East Coast, which depended heavily on crude and refined gas produced in or near the gulf. That resulted in gas prices jumping by nearly 60 cents per gallon, according to research by Lewis.
But the pace at which the increases ebbed differed within that market, in part because its retail structures differed among states and cities. In those with high concentrations of independent gas stations — those unaffiliated with branded refineries — prices fell relatively faster.
The reason, Lewis found, was that those communities experienced “cyclical pricing,” in which gas station owners had a habit of changing their prices frequently as a competitive device, often moving the price of gas day by day. Strategic pricing tended to make high prices relatively less sticky.
California is another unique market. The state’s limited refinery capacity makes it more vulnerable to crude price shocks, and its mandate for anti-smog gas formulations in the summer also constrains gas supplies, pushing prices higher. California’s gas taxes are higher than the national average, contributing to its nation-leading prices at the pump.
Then there’s what Borenstein has identified as the state’s “mystery gasoline surcharge,” an unexplained differential in price that originated after a 2015 fire at a Torrance refinery then owned by Exxon Mobil, but persists without explanation more than a decade later and is currently estimated at more than 50 cents per gallon.
What’s indisputable is that consumers are paying for the Iran war at the pump, and they’ll continue to do so for weeks, even months, after the conflict is resolved and the Strait of Hormuz is opened again to all traffic. Economists observe, furthermore, that large price spikes at the pump take longer to return to equilibrium than small ones, in part because retailers can keep prices high until they see evidence that they’re losing customers.
In other words, it’s reasonable to feel relief once crude oil prices retrace their journey back to where they were before the Iran war began. Just don’t expect to feel relief at the pump any time soon.
Airbnb unveiled a new set of services for guests on Wednesday, adding car rentals, airport pickup and grocery delivery to its online marketplace that connects travelers with local hosts.
Customers can now get groceries delivered to their Airbnb through a partnership with Instacart and have a driver meet them at the airport with Airbnb’s Welcome Pickups. The app is also offering luggage storage in partnership with Bounce and will add in-app car rentals later this summer.
At the same time, Airbnb is ramping up its use of AI by adding AI-powered review summaries and lodging comparisons, the company said.
The company has been expanding beyond lodging since last year, when it introduced Airbnb Experiences and Services, giving guests the option to book private tours and chef-cooked meals through the app.
In an earnings call earlier this month, the company’s chief executive, Brian Chesky, said the company is at “the very, very beginning of how AI is going to change how we all do our jobs.”
The changes are coming in time for the 2026 FIFA World Cup, which will take place in 16 cities across the U.S., Mexico and Canada. The company said its offering exclusive World Cup experiences, such as watch parties and access to stadiums.
“In terms of what we’ve seen in cumulative bookings heading into the event, the World Cup is slated to be the largest event in Airbnb’s history,” said the company’s chief financial officer, Ellie Mertz, on the earnings call.
Airbnb gained popularity for offering travelers unique and homey stays on other people’s property, but it added boutique hotel bookings to its platform late last year. The move had some customers questioning if the app was straying too far from its original purpose.
In its announcement this week, the company said it is partnering with more independent hotels in 20 top destinations, including New York, London and Singapore. On the earnings call, Chesky said hotels on Airbnb could become a multibillion-dollar revenue business.
The San Francisco-based company was founded in 2007 and gave homeowners the opportunity to earn money by renting out their space to travelers seeking something different from a hotel. Airbnb bookings can range from private bedrooms in a shared home to luxury mansions and yachts.
The company’s revenue grew 18% year over year to $2.7 billion in the first quarter, while net income increased slightly to $160 million. Airbnb’s new services and offerings could transform it from a home-sharing platform to a holistic travel marketplace, analysts said.
Shares of the company have increased by 14% over the past six months and fell by less than 1% on Thursday.
Elon Musk wants to take investors on a ride to the moon — and beyond.
His pioneering rocket company SpaceX filed Wednesday for what’s expected to be the largest initial public offering in history, potentially raising at least $75 billion and valuing the company at as much as $2 trillion.
The registration statement with the Securities and Exchange Commission for an expected public offering next month explicitly sets aside stocks for retail investors, though the exact number will be spelled out in a later filing, as will the offering price and company valuation.
Interest in the stock offering is expected to be high despite the billionaire’s controversial politics, including his involvement last year with the Department of Government Efficiency, the makeshift cost-cutting effort that resulted in the loss of hundreds of thousands of government jobs.
“Potential investors are probably just as polarized as the electorate is too, given his dabbling in politics,” said Carol Schleif, chief market strategist for BMO Private Wealth. “But it’s not just the SpaceX IPO per se, it’s a bigger, broader excitement among investors for space investment in general.”
Investor interest was piqued by the Artemis II moon mission this year that SpaceX did not participate in, she said. However, the company is expected to play a larger role in future missions that take astronauts to the moon..
Ultimately, Musk, 54, wants to establish a colony on Mars but those plans have been set on the back burner, with NASA now focusing on moon missions.
Musk will remain the company’s chief executive and chairman. Under a dual-class stock structure as a holder of special Class B shares he will be able to control the election of directors, the filing says.
The IPO is expected to be at least twice as large as the current record holder: Saudi Aramco, the state-controlled national oil and gas company of Saudi Arabia, which raised nearly $30 billion in 2019.
Nearly two dozen banks will be underwriting the IPO and offering shares to investors, including Goldman Sachs, Bank of America and Citigroup.
Founded in 2002 in El Segundo, SpaceX has revolutionized the aerospace industry by developing the reusable Falcon 9 rocket that has radically lowered launch costs.
The company moved its headquarters from Hawthorne to Texas in 2024. However, SpaceX retains large operations in the South Bay city and blasts off regularly from Vandenberg Space Force Base in Santa Barbara County.
Scores of former SpaceX employees have launched startups in Southern California, including rocket company Relativity Space, hypersonic missile startup Castelion and satellite manufacturer Apex Space.
Since developing its reusable rocket technology, SpaceX has established its Starlink network as the leading satellite-based broadband internet service. It also is moving into satellite-based cellular service and this year merged with Musk’s xAi artificial intelligence company that also included his X social network.
Marco Cáceres, an aerospace analyst at Teal Group, said that the advantage of going public for SpaceX lies in the IPO’s ability to raise a large amount of capital quickly to complete development of its Starship rocket.
“It is going to dominate the market even more than the Falcon 9 is dominating the market now,” he said. “That’s going to be ultimately what’s going to drive their business for the next 10 years.”
The 12th test launch of Starship is set for Friday from the company’s south Texas launch facility. The rocket is the third version of craft, standing more than 400 feet tall and with about three times the payload of the second version.
The regulatory filing claims that the market for its rocket, internet and mobile telephone businesses could be as large as $28.5 trillion.
SpaceX also plans to launch thousands of orbiting data centers powered by the sun that would perform AI calculations.
With the company making massive capital investments, it recorded a $4.28-billion loss in the first quarter. Last year, it recorded $18.7 billion in revenue and lost $4.94 billion, according to the filing.
The public offering is expected to hit the market next month after a “road show,” during which SpaceX will seek to drum up interest from institutional and retail investors.
It will arrive after a fairly quiet year for IPOs that was brightened last week when Cerebras Systems, a Sunnyvale company that makes semiconductors for AI supercomputers, went public.
Shares at Cerebras were offered at $185 and jumped 68% on its opening day. They closed Wednesday at $290.69.
Matt Kennedy, a senior strategist at Renaissance Capital, said the SpaceX offering would dwarf that of Cerebras, as it is expected to raise more than every IPO combined in the last two years.
“A win here or a loss could really impact the IPO market,” he said. “The sheer size of this deal is going to make or lose fortunes.”
Among the oddest disclosures of the IPO is a decision by the company’s board in January to grant Musk 1 billion Class B shares if the company reaches a certain market capitalization and establishes a “permanent human colony on Mars with at least one million inhabitants.”
Erewhon opened its newest location in Glendale on Wednesday, marking the luxury grocer’s 14th store in Southern California with more set to open soon.
The new store, located at 520 N. Glendale Ave., includes the chain’s signature cafe and tonic bar as well as an indoor-outdoor patio space.
Known for its upscale, trendy products and high prices, Erewhon has grown into a tourist destination in Los Angeles and a hot spot for celebrities and influencers.
The Glendale location will bring Erewhon staples to trendy consumers in the area, including the beloved Strawberry Glaze Skin Smoothie, which until last year was named after the model Hailey Bieber.
Employees at the store handed out complimentary gift bags and fresh flowers during the grand opening Wednesday morning.
“This location was designed to reflect the spirit of the neighborhood while creating a welcoming space to gather, centered around wellness, connection, and a commitment to the quality standards that define Erewhon,” Erewhon President Josephine Antoci said in a statement.
The company purchased the space, which was formerly a hardware store, in 2024.
Erewhon has locations in several of Southern California’s wealthiest areas, including Calabasas and Beverly Hills. It also has stores in Venice, Manhattan Beach and at the Grove.
“Erewhon’s decision to invest in Glendale reflects confidence in our city’s economic future,” Glendale Mayor Ardashes Kassakhian said in a news release.
The grocer was founded in 1966 by Japanese immigrants Michio and Aveline Kushi — pioneers of the natural-foods macrobiotic movement — who began selling imported organic goods out of their Boston home. In 1969, the company opened its first Los Angeles location on Beverly Boulevard.
Josephine and Tony Antoci bought the company in 2011 and helped launch it to its luxury status with a cult-like following. Tony serves as chief executive while Josephine handpicks much of the store’s merchandise.
By the mid-2010s, Erewhon had become a watering hole for celebrities such as the Kardashians and the Beckhams.
The company has its eye on further expansion. A Thousand Oaks location is slated to open this August and stores in Costa Mesa and downtown Los Angeles are planned for 2027. An Erewhon cafe opened in the Los Angeles County Museum of Art’s new David Geffen Galleries earlier this month.
The Pacific Palisades location, which shut down after the wildfires last year, is set to reopen in January.
The Glendale Erewhon takes the place of Virgil’s Hardware Home Center, which opened in 1932 and closed in 2019.
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