Economics, Energy and the Environment

Energy fact of the week: What’s up with gasoline prices?

The network TV news broadcasts this week are in a lather about the rising pump price of gasoline, which has been creeping up steadily for the last few weeks ahead of the usual seasonal surge. Already it appears we’re heading for record pump prices this summer—maybe reaching $5 a gallon in some high cost states. All of the usual reasons are in play: the price of oil stuck stubbornly around $100 a barrel or higher, uncertainty in the Middle East, sustained demand from China, and the recovering U.S. economy. But there is one aspect of this story that is still incongruous: gasoline consumption in the United States appears to be sharply lower over the last few months—at least if you go by the Energy Department figures on retail gasoline deliveries (a close proxy for overall gasoline consumption) shown in Figure 1. In fact, the trend of the last couple of years shows a sharp break with the relatively stable trend of the last 25 years. What’s going on?

You might think if demand is dropping the price would be flat or falling. Or perhaps the falling deliveries of gas is why prices are rising, except there’s no indication that gasoline supplies are tight right now, unless you buy one of the always-discredited conspiracy theories that the fossil fuel industry is manipulating the market. Higher fuel economy of the surface fleet (hybrids, Chevy Volts, etc) probably can’t explain the magnitude of this trend. A number of observers think it is possible that this sharply declining trend is another indicator that the economy is heading down again. (Charles Hugh Smith offers still more interesting analysis here.)

Figure 1: Retail Gasoline Deliveries, 1983 – Nov. 2011

Source: Energy Information Administration

2 thoughts on “Energy fact of the week: What’s up with gasoline prices?

  1. Changes in the price of gasoline and the price of crude oil are highly correlated. The oil market is a world market in which the price of crude oil is determined by fundamentals. U.S. consumption fell last year, but China’s oil consumption grew by 4.7 percent last year and is projected to grow by 5.4 in 2012. India’s oil consumption grew by 5.6 percent last year and is expected to increase by 3 percent in 2012. Together, China and India accounted for 68 percent of the increase in total world oil consumption in 2011. Total oil consumption in China and India is expected to grow by 4.8 percent this year, thereby keeping pressure on world oil markets. The U.S. is not insulated from the world market and thus the fact that U.S. gasoline consumption fell (in response to higher prices, a very modest GDP growth rate of 1.7%, a continuing high level of unemployment as well as a switch to cars that get better fuel mileage) doesn’t really count for much if the decrease is more than offset by what is happening in the rest of world.

  2. When a bbl of oil spiked to more than $140 under Bush and the pump went to nearly $5 per gallon here in the deserts cities of CA, I don’t know what Bush did and I don’t care, but what ever he did the priced dropped back to the mid $80 per bbl and under $1.80 per gallon within about 30 days. The whole thing lasted less than 30 days. I was on a cross country road trip at the time. The last tank of gas I bought was $5.099 when I left, and the first when I returned was $4.939.

    The current administration has had nearly 3 years after a bbl spiked to less than $130 and the pump went to $4.899. A bbl dropped back to the mid $80 range just as under Bush, but the pump has yet to go below $3.909.

    This tells me that ob is more concerned with raping and pillaging the working class than anything else, no matter what he says about unions. Just keep paying your dues so your union can make outrageous donations to keep him in office. You’re personal contribution to you’re own choice of candidate can’t hold a candle to what your unions will give ob. And it’s YOUR dues!

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