Monday, May 26, 2008

$4/Gallon Gas NOT That Bad?!...

A recent article in Slate tried to make the case that $4/gallon gasoline WAS “still a BARGAIN.”


Close, BUT not quite.

Comparing America, an automobile-dependent nation, to other nations that are smaller and far less automobile-dependent (ie. England and Norway, both as large as some American states) is absurd. The ONLY real comparison for the price of gasoline in America is to compare current prices to past prices adjusted to inflation.

Since the all-time U.S. high (adjusted for inflation) was in 1981, at appx. $1.35/gallon, and given the inflation rate (0.85 dollars/85 cents = $2.10 in today’s dollars), our U.S. high in today’s dollars was about $3.46/gallon, BUT that was in the wake of one of the most crippling oil crises in history, with Iran holding U.S. embassy workers for 444 days and the world wondering about severe disruptions in the supply of oil.

So $4/gallon is a pretty high price for gasoline under normal conditions. Even accounting for today’s “far from normal conditions," it’s still a high price.

The author also notes that "even back in 1922, a gallon of gasoline cost the current-day equivalent of $3.11, adjusted for inflation." Again, at the start of the automotive era, with fewer people driving, the cost of refining gasoline, relative to the demand cycle reduced the gasoline maker’s ability to make “bulk profits,” so the price per unit (gallon) was higher than under the eventual high demand/bulk profit scenario that became the norm in America.

Of course world demand has more than quadrupled and supply hasn’t kept pace and our refusal to drill offshore and in ANWR has made the higher price inevitable, but despite the reasons, $4/gallon gasoline is still a very high price...and yes, it may be going up even further, due to our own energy ineptitude.

A more apt statement would be, “$4/gallon gasoline is high, but not nearly as high as we should expect to see, given our current dismal energy policies.”

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