The Gas Price Roller Coaster

If you want to build a fire under the American public just raise the price of a gallon of gas. Letters to the editor pour in, sound bites from politicians on the 24/7 news channels demanding action, and fingers pointing blame at everyone from the president to little green men from Mars.

Why are we so passionate about the price of gas?

One big reason is — it’s the only product I know of — where you can stand and watch those little numbers climb higher and higher in a matter of seconds. It gives new meaning to the phrase, “Going from zero to 60.” In this case its $60 or more depending on what you drive.

In addition, the price of gas affects so much of our daily lives. Much more than just our transportation costs. Almost any consumer product you can name was delivered by some conveyance powered by fossil fuel. As gas prices increase so does everything on store shelves. For every ten cents a gallon increase in the price of gasoline, your disposable income is reduced by about $7.00.

Why is gas so high?

Is it? In the 1960’s, when gas was .35¢ a gallon, the Arab nations tried to boycott selling oil to countries that were favorable to Israel. It failed. In the early 1970’s OPEC tried an oil embargo on the US and Nixon created the Strategic Petroleum Reserve keeping the price at .39¢.

In the late 1970’s Jimmy Carter’s outrageously high .86¢ gas saw many cars with a bumper sticker that read, “Jimmy Carter can KISS MY GAS.” In the 1980’s Oil and Gas futures trading began under Ronald Reagan and gas went to a whopping $1.38. Would anyone not like to see prices like that again? Current political candidates are talking about returning to $2.50 gas like it’s the second coming.

Here are past and current presidents and their highest average gas prices in March 2012 dollars.

George W. Bush: $4.27
Barack Obama: $3.97
Ronald W. Reagan: $3.65
Jimmy Carter: $3.57
George H.W. Bush: $2.30
William J. Clinton: $2.19

How much gas are we really using?

Since 1950, gas as a percentage of disposable income, has been about 3.5%. Currently it’s about 3.6% as we near, or in some areas pass, the $4.00 per gallon mark. At the same time, demand for gas due to more efficient cars, and higher mileage restrictions put on automakers, is at its lowest level since 2001.

So when does “supply and demand” kick in?

If demand for gas is so low shouldn’t that drive prices down … not up? If we were living in a vacuum, that would be true. But we no longer exist in just the 48 contiguous states. Now gas and oil are world markets and we are a major player in those markets.

Just as the old saying goes, “A rising tide lifts all boats,” a world market increases the cost of commodities that are in demand throughout the market. Including the good ole USA.

We are our own worst enemy when it comes to increasing gas prices.

The vast majority of Americans exacerbate the problem of high gas prices by changing our driving habits. Rather than driving until we are nearly empty, as we do when prices are low, we top off our tanks in the mistaken notion that we are saving money. That action causes two things to happen. Both are bad.

One, it creates an “artificial demand” for gas that doesn’t really exist.  Which means the station has to buy more gas, more often than necessary, and that keeps prices high.

Two, instead of the oil company storing their gas, in their tanks, at their expense until you need it, you are paying them to store their gas in your tank when you don’t actually need it. So knock off topping off your tank! Fill the bottom half of your tank if you must but not the top half. You’re costing me money.

Some Final Thoughts

Between now and 2030 the world will increase by 2 billion people and the need for fossil fuels will double. As long as fossil fuels remain the most economical way to move products from one place to another we are going to live with them. We would all like cleaner alternative fuels but wishing for them is a wasteful endeavor. They will come eventually but technology takes time to evolve.

The horse and automobile co-existed, side-by-side for over 50 years. Shooting all the horses would not have made the automobile evolve any faster. Technology takes time. We were able to develop an atomic weapon that ended a world war — but we dropped that weapon from a propeller driven plane — not a jet. Have a little patience.