Saturday, March 31, 2012

The rate of change in the price of gas is rising

In my last post I was a bit surprised by the increased spikeyness in gasoline in what I had dubbed the "new trend" starting around 2001. One way to look at spikeyness is to look at changes in prices over time (in this case, the rate of change from week to week).

This picture is the week to week change for the national average price of a gallon of gasoline from 1994-present. As with the prior two posts, the chart is built using data available at

In this chart, data points above zero mean the gas prices went up that week. Data points below zero mean that gas prices went down that week. Data points around zero mean gas prices were largely unchanged that week. With that in mind, some observations:

1. From 1994 to 1998 gas prices were "mostly stable". You can see year over year trends hovering around the zero mark. While large spikes upwards occur, these are eventually offset by more prolonged but lower downward spikes afterwards (prices rise fast, but lower slowly).

2. Peak prices (highest spike points) often occur in April. So, I suppose there's a reason why the urban legend that started me off on this road happened across three Aprils (1997, 2011 and 2012).

3. To my surprise, the new trend I talked about didn't start following the 2001 recession. It began in 1999. Starting in 1999, most of the data points are above zero. This suggests that the price of gas began - and continued - rising.

4. The prolonged downward trends in gas prices are generally associated with recessions (2000-2001 and 2007-2009).

5. Also, to my surprise, the "new trend" isn't linear, it's curvilinear. Beginning in 1999 you hardly ever see prices hovering around the zero mark. There are short stretches of unchanged prices (April to August 2010 for instance), but in general, a trend line for price change would be somewhere around the 1% mark. Basically, since 1999, the rate of price increase has itself been increasing by about 1% a week. This has been punctuated by brief (but large) spikes and longer (but lower) price drops. 1% a week doesn't sound like much, but that's a pretty substantive annual change...

6. We actually had a pretty nice downturn in prices between April 2011 and December 2011. I'm not sure what's happening there, but that's a prolonged downward price movement during an economic recovery (albeit a slow one).

Friday, March 30, 2012

Gas prices are rising... as they have been

Data from The U.S. Energy Information Administration tracks the average price of gasoline in the United States.  For purposes of the following graph, I am using all grades, reformatted prices.  For reference, changing the formulation of gas changes the prices - but not the general shape of the curve.

So, this is what gas prices have looked like since 1994.

1. Regardless of the time frame, gas prices fluctuate. Whatever the trends, there will be times where we are way above or way below the trend. Don't let yourself be lulled into believing that low prices are a sign of the future - they are temporary distortions. Use the short-term savings to help cover the next spike over trend.

2. There is a somewhat stable, but mildly upward sloping trend evident from 1994-2000. Those were the good old days, they are over.

3. After the 2000-2001 recession low point, gas prices have since risen and generally by a fairly accelerated amount. This is the new trend. Our current prices are a bit over the new trend line, but at the tail end of last year they were below that trend. Enjoy the short downturns, don't expect them to continue.

4. Since 2000, variation in gas prices has been a lot more spikey. Fluctuation around the trend are larger (in both directions).

5. The last big downward run in gas prices was in conjunction with the 2007-2009 recession. I suppose you could hope for $1.50 a gallon prices again if you want 12% unemployment. I don't think that trade off is a good one though.

The real driver of price is growth in the global economy which has averaged around 5% (barring the 2007-2009 recession). The story is in the emerging and lesser developed economies - which are growing faster and have a lot more people than the advanced economies.  I will put something together on this next week.

Nothing suggests this general trend is going to change. Capacity (far more important to the problem than drilling) has been increasing globally by about 2.5%. For reference, growth in China alone has exceeded global refinery capacity.

Realistically, the question isn't why are prices so high, it's why aren't they higher? The answer is fuel economy. We are getting a bit better at burning fuel, somewhat offsetting the rising global demand patterns.
If you REALLY want to help, sitting out on a day of fueling up isn't the answer. At best it does nothing to that days global demand. At worst, you hurt the employment status of some average Joe/Jane working at the gas station.

Really helping involves making smart decisions on your fuel consumption. Use more fuel efficient vehicles, carpool where possible, travel outside of traffic congested times (if possible), work from home, heck even the much maligned 'check your tire pressure.' They are all fairly insignificant, but they actually address the underlying economics in a way that screaming into the wind (a fuel boycott) doesn't.

Thursday, March 29, 2012

Higher gas prices lead to bigger hoaxes?

The following image made the rounds through email forwarding recently.
There is an awful lot wrong with this proposed boycott. Not even considering the basic fact that the boycott merely shifts demand around by roughly 24 hours, this particular boycott is just full of wrong.

Some facts are in order:

1. Throughout the month of April, 1997 the national average price for a gallon of gasoline varied from $1.25 to $1.26. If this famous protest did occur in April, 1997, it failed miserably.

2. Additionally, April 1997 gas prices were right in range for the entirety of 1997. For 1997, the lowest point for the average gas price was $1.19, occurring in December. The high point for the average gallon of gas was about $1.32 in September. Again, if this April protest is more than an urban legend it was a pretty dismal failure.

3. In paragraph three, the protest organizers want you to not use gasoline on April 15, 2011. Now, I don't know about you, but I'm pretty sure my time machine doesn't get good gas mileage.

4. Incidentally, the average price of gas in April 2011 was about $3.78 just before the proposed 2011 protest. This is a recycled bit of urban legends (so, kudos I guess for "going green" with your urban legends).

5. For those scoring at home, gas prices in April 2011 went up the entire month (closing at around $4.01). The 2011 protest was about as effective as the 1997 one apparently.

I will post a photo of average gas prices from 1994 to present in a later blog post. It's pretty clear that the slight upward trend in gas prices from 1994-2000 turns into a hectic upward trend from 2000 on. Plan on gas prices rising as a trend going forwards. There will be some down-spikes, but those are lulls in the storm not a new trend in itself.

Fake movements like this really irritate the heck out of me. They don't help, they distort reality and by making people feel like they have done something, they actually prevent working on resolving genuine underlying problems.

(Source of rebuttal: U.S. Energy Information Administration,