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.

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