Wednesday, August 10, 2005

$2.37 and counting

After driving some 1300 miles across the midwest over the past two days, the big spike in gas prices has hit my wallet a little harder than most. Yet even though crude oil on the NYMEX is over $64/barrel, one is constantly met by the rejoinder that "things were worse in 1981" when the real price of oil was near $90/barrel in current dollars.

So are gas prices really much ado about nothing? In March 1981 the US national average for a gallon of gasoline topped out at $1.38. Using the CPI as a deflator, that comes out to $1.56/gal. in constant 1982-84 dollars. The current national average is $2.37/gal. That's around $1.20/gal. in 1982-84 dollars (hard to say precisely since we don't have the July or August CPI data yet). Per the CPI, gasoline in current terms will have to reach ~$3/gal. to be an all-time record.

If you prefer the PCE price index, however, we're not nearly that far away from 1981. In constant 2000 dollars, the 1981 price was $2.47/gal. while current prices are around $2.10/gal. In current terms, gasoline will only have to reach ~$2.75/gal. to be a record.

So while crude oil prices are currently around 70% of their real record high, gasoline prices are around 80% of the real record per the CPI and 85% per the PCE index. Things were worse in 1981 -- and today's price of gasoline is worse than crude oil.


At 4:27 PM, Blogger john c. halasz said...

I asked this over a DeLong's and didn't receive a clear reply: why is it, when the price of crude oil is high, (indicating high demand), the profits of refiners also swell? Wouldn't the normal micro-economic assumption be that an increase in the cost of a raw material input to a manufactured product results in a proportional increase in the costs of production and market price and thus decrease in demand, thereby reducing profit margins?

At 11:18 PM, Anonymous cm said...

You can keep counting from $2.37 for a while until you get to the around $2.70 (Regular) that I see in my neighborhood (close to San Jose, CA).

There is one gas station around here which is consistently 20c over market, presumably because of unique location, which sports $3.099 for the high (92 octane) grade, and $3.199 for diesel. Other stations are around $2.90 for high-grade gas. If current trends continue, we will break $3 everywhere within a week.

At 6:22 AM, Anonymous Anonymous said...

Stephen Roach has made the point that what matters in terms of the impact of an oil shock is not so much the price but how far it has risen.

At 7:31 AM, Anonymous DF said...

Well prices have doubled compared to 2003.

Hey general, have you read my comments on brad setser's blog ?
I ve mentionned general glut at least 4 times.

With oil this high consumers will only keep their spending level if they take on more debt ...
Can you find us how much more debt they need to keep the economy afloat (assuming wages will not rise in line with oil prices, which is a sure bet)

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At 3:28 PM, Blogger David Skul said...

This comment has been removed by a blog administrator.

At 3:30 PM, Blogger David Skul said...

Midwest Gas Price Investigation - Investigation Likely To Continue For At Least Three to Four More Months

The Federal Trade Commission (FTC) issued an interim report to Congress on its investigation into Midwest gas price increases that was cited at the reasons that the FTC launched the investigation. It also provides a status report on the continuing investigation, including progress and a description of the work not yet done. The report details the history of the price spikes of reformulated gasoline (RFG) in the Midwestern part of the country and how these increases caused Commission staff to initiate a preliminary investigation in June and prompted the Commission to begin a formal investigation during the latter part of July.

The report analyzes many conditions reported as potential causes of the gas price spikes - ranging from higher than normal crude oil prices, to the expectation of compliance with EPA Phase II regulations for summer-blend reformulated gasoline in high-ozone urban areas, to the damage to the critically important Explorer pipeline during March. However, the report says that "although it is likely that each of these supply factors contributed to the dramatic recent price spikes in the Midwest, no single factor appears from staff's preliminary investigation to be likely to provide a full explanation, and staff does not yet have sufficient information to assess the impact of these factors in combination."

In accordance with the report, Commission staff is investigating "the possibility of collusion or tacit coordination, conduct that could be illegal under Section 5 of the Federal Trade Commission Act." Due to the abundance of potential interwoven causes as well as the monstrous amount of evidential information being collected for the course of the investigation, the report also states that "this investigation is likely to consume, at a minimum, another three or four months."

The report shows that on June 29, Commission staff issued the first round of subpoenas to the nine refiners that currently supply the Midwestern markets and that within the month, staff has accepted and logged approximately 200 boxes of documentation. Around mid August, most documents requested from the first round of subpoenas will be delivered to the Commission offices.
The Commission also issued a second round of subpoenas to other refiners last week, and has issued Civil Investigative Demands (CIDs) to the refiners recently, requesting that the refiners compile data and answers to all of the Commissions written questions. Commission staff issued another set of subpoenas on July 25 to the entities that own or control the gas transportation pipelines serving the Midwest markets of the United States. Documents from that set of subpoenas are expected to begin arriving shortly at Commission offices.

The report further details the Commission’s plan to conduct a series of in depth interviews as part of the investigation. Staff has already conducted nearly 15 interviews with market participants, consumers, corporate consumers and many others with knowledge of investigation relevant information, and continues the process of capturing pertinent industry-wide data from the Oil Price Information Service (OPIS). After the documentary evidence has been reviewed and analyzed, staff will take depositions under oath of key participating personnel throughout the gasoline distribution chain in the Midwest United States.

Federal Trade Commission staff will also coordinate all of the investigative efforts with the Attorney General of Michigan, Ohio, Wisconsin, Illinois, Iowa, Minnesota, Kentucky, South Dakota, Indiana, Missouri, and West Virginia.

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