April 6, 2004
BLAMING THE ARABS:
The Real Price at the Pump (Daily Policy Digest, April 06, 2004, National Center for Policy Analysis)
Gasoline prices are relatively normal by historic terms. Sure, people are paying more for gasoline today than ever before. They're also paying more for houses, cars, lettuce, baseball cards and almost everything else than ever before. Historical comparisons of prices over the years mean absolutely nothing unless we adjust for inflation, say the Cato Institute's Jerry Taylor and Peter Van Doren..If we adjust gasoline prices for inflation and use 2003 dollars, we find:
* During the most celebrated days of cheap fuel and gas guzzling cars -- 1955 -- gasoline actually cost $1.66 a gallon on average across the nation.
* In 1972, the year before OPEC began to flex its muscles, prices were $1.28 a gallon.
* In 1981, the real record was set -- $2.36 cents a gallon; prices are only a nickel higher now than at this time last year.
One aspect of the story that you seldom hear reported, for obvious reasons of political correctness on the one hand and Saudi hatred on the other, is that we have an ample supply of oil and prices are being driven by the costs and bottlenecks associated with mixing in the various mandated additives, not be low supplies generally. Posted by Orrin Judd at April 6, 2004 3:16 PM
Well, that, and refinery capacity is terrible right now.
Posted by: Chris at April 6, 2004 3:56 PMKerry should suggest that the US overthrow Chavez and take the Venezuelan oil. Mexico would tremble, and the ANWR would be off the radar screen for years to come. It might just help him.
Posted by: jim hamlen at April 6, 2004 4:04 PMCan't tell for sure if this analysis is net or gross of fed, state, local taxes on a gallon of gas. If it's gross, the combustible part of the $1.73/gal of today may cost even less than the 1981 inflation-adjusted peak.
Posted by: John Resnick at April 6, 2004 4:41 PMWhat Chris said.
If you don't build any refineries for 20 years while the consumption doubles -- or whatever it did -- even a marxist could predict the result.
The amazing thing is the price is as low as it is, probably due to the vast and increasing world oversupply canceling out the idiocies of domestic energy policy.
Posted by: Harry Eagar at April 6, 2004 5:05 PMCertainly the problem with some fuel prices, such as what we have in PHX, AZ, are due to different mixing standards. The fuel additive issue can easily go away if high-smog cities can agree on a single standard. I don't know what the general refining issue is that others mentioned.
However, the general trend towards higher prices is due to the industrialization of China and other oil demands from East Asian economies.
I wouldn't be surprised if we hit the Hubbert Peak fairly soon and production begin to decline.
Posted by: Chris Durnell at April 6, 2004 5:25 PMHarry, you're sure on target about the refinery problem.
There has not been a world-scale grass-roots refinery completed in the USA since 1978. ("Grassroots" refers to the entire facility being immediately preceeded by a virgin "grass" landscape.) I was in the next-to-last grass-roots refinery(1977 completion) within two years of its startup. My own experience had been in the opposite situation: old refineries expanded/modified/rebuilt to no end. Witnessing a grass-roots facility with its efficiency, improved integration, and state-of-the-art hardware can bring envy and near-tears-of-joy in witnessing what is POSSIBLE.
Any regular longterm replacement of our refinery infrastructure will seem a herculean task. But its payout would be enormous. The alternative is a continuing slippery slope to shoddiness, with continuing inapparent costs. We have met the enemy and it is us.
So gas prices are somewhat high. Big deal. Most people don't realize how little this affects them. The average car, IIRC, is driven 13,000 miles per year. At 30 MPG, that's 433 gallons a year. So 10 cents per gallon means an additional--wait for it--$43.33 per year.
Watch out!!! Thirty cents more than usual!!! Oh no--a whopping $130 annually!
Obviously, those who rely on oil for heating are somewhat worse off.
But still...
Posted by: jsmith at April 6, 2004 11:42 PMLarry, here in Hawaii we have a gas cap law, though it is just barely possible that it will be repealed or sent out to pasture. The governor is against it.
There are 2 refineries. No doubt if there were three, either there would be more competition and the price would go down, or the old, inefficient one would close, and the price would go down.
Simple, isn't it? Just find a piece of oceanfront in Hawaii and buy it and build a refinery on it.
Posted by: Harry Eagar at April 7, 2004 1:07 AM