Gas Is Actually a Bargain at $3.56

From an anonymous comment on this CD post about gas prices as a percentage of income:

"You should further adjust the data for increased fuel efficiency per mile travelled and average mile driven per auto. 1000 gallons of use in 2008 moves an auto at least 50% further than in 1980."

In response, the chart above shows the average annual miles per gallon for passenger cars, from 1949 to 2005 (EIA data available here). From a low of 13.4 m.p.g. in 1973, fuel efficiency increased by 71% to 22.9 m.p.g in 2005 (most recent year available), and by 43% since 1980 (14 m.p.g.).

Bottom Line: Adjusting for both increased fuel efficiency and the significant increases in income since 1980, gas today is a bargain, even at $3.56 per gallon (price I paid today in Michigan).

Gas Prices Could Be Worse - A LOT Worse

About 2.5X worse to be exact, in the Netherlands. See retail gas prices above in selected European countries from late April 2008, data available here from the EIA.

Retail gas prices in other European countries:

Comments

[echotoall]

WHAT? you correlated rise in gas price over the years to rise in incomes since the 1980s. Lets do a quick back of the envelope...

regular gas when i was in high school (mid/late 90s) was about $1 and change. Now it is about mid/high 3. ($4 in the NYC area). So that is about a 250-300% rise in price.

How much did incomes rise since the 1980s? (I can almost say with certainty incomes did not rise 300% since.)

How in the world is this a bargain, with such a growth disparity?

also, i hate seeing the other country comparison... on a total $ basis, the US consumer spends far more on gas. Period. (basic economy of scale apply... use more, pay less per unit.)

So YES things are already 'worse' out there!

[ponchovilla]

Mark just thrives on having a conclusion and finding a chart to support it. Similar to Larry Kudlow, he only tells one part of the story. End of discussion. Goldilocks skips along. While it is true that passenger cars have improved in mileage and reduced emissions over the last 40+ years, there's always the "BUTT" part of the story:
1. Families have more cars
2. Distance traveled between home and job has increased.
3. The number of SUV's and light trucks in 2005 compared to "passenger cars" is "somewhat" higher than in 1970, 1980 and 1990.
4. Demand is largely inelastic. Refiners report about 1% less gasoline usage over the past year and about 10% increase in diesel.
5. If EPA gas mileage statistics are used in the EIA data than the most recent statistics are overstated. Excuse me; all of us in "Seeking Alpha" land accept government data as absolute truth.
6. GM has just introduced a "green" 5800# Yukon EPA 20 mpg highway, real number closer to 18 for only $60,000 sticker. Now isn't that a "sticker"? Price and mileage.

There are at least two real issues here:
1. The "gas tax" effect on disposable income is significant and is creating serious pain for a large part of the population and particularly to independent truckers who are facing repossession and bankruptcy. It's too bad they can't make normal load/deliveries in a 22 mpg passenger car. However, I would observe that anyone part of the new "middle class" making $125,000+ per year may rationalize $3.56/gallon for gas as historically "fair" but not necessarily a "bargain". It depends.
2. Because the US imports most of it's oil the trade imbalance continues to stress the value of the dollar. If debt doesn't matter then this is not an issue.

Final thoughts:
If Gas at $3.56/gal is a bargain:
than is Gas at $4.00/gal fair value?
and does Gas at $5.00/gal cause a bit of concern?

The people in California or in Great Britain can't answer the question without prejudice. If you are a CNBC talking head and only ride inside a limo or your name is Hillary Clinton and just paid $60 for gas for a trucker in Indiana (first time she paid for gas in x years) then you can't vote either.

[graybeard]

@echotoall: your "economy of scale" argument isn't valid in this case. It is a world-wide market with price set by the global supply/demand balance. There are relatively small differences in the wholesale price from one country to the next, based mainly on transportation costs. Traders will move large volumes of gasoline around the globe whenever in trader lingo, "the arb is open", meaning the price difference between two markets is larger than transportation costs. Usually in the summer, the arb is open from Europe to the US for gasoline, meaning European gasoline is cheaper than in the US by enough that traders make money moving marine cargos of European gasoline to the US east coast at a lower delivered cost than gasoline moving up the pipelines from the US refineries in the Gulf coast. This trading action keeps wholesale gasoline prices around the world in a tight, highly correlated range.

The big differences in prices at the pump are driven almost completely by taxes. Over the long term, these different tax policies have had a huge impact on driving habits in the US vs. Europe.
For a really good summary of what really drives gasoline consumption, including interesting correlations between price and demand, see pdf.wri.org/automobile-fuel-economy-co2-... It shows that higher historical prices in Europe have driven consumers to both buy smaller cars and drive them less.

[paulk8756]

Alright, let's get back to basics. As an "unintended consequence" of winning the cold war, we've provided an atmosphere for worldwide free trade, and unwittingly created millions of additional automobile buyers and gasoline customers. Was that a good idea in retrospect... personally, I'm pretty neutral on this issue.

What is troubling is our country's OWN unilateral decision to purposely ignore the law of SUPPLY and demand in the oil and gas exploration (...and larger energy consumption) equation. Unless and until we open up our country's own energy reserves to domestic exploration, as is the case in virtually all other nations, we're going to have to rely on imports to meet our energy requirements.

This is so simple you would think even a schoolchild could understand it, but for some reason such rudimentary economics are lost on the majority party in the U.S. Congress. Today's Washington is like Jimmy Carter and Al Gore gone green... or is that mad?

[echotoall]

Graybeard... thanks for the info regarding the trading. But the argument can become a 'chicken or the egg'... currently i completely agree with what u stated. tax policy plays a huge role, but back in the day when the highway infrastructure was being built, I seriously doubt our tax policy played any role. The US had the objective to have automobile centered cities, and interconnecting highways which naturally promoted greater driving habbits.

Most other cities around the world, primarily europe are not centered around the automobile. Hence promote less driving. (This is why there is so much congenstion in london, paris, athens etc and they must have added tax, on top of the huge gas tax, to prevent traffic.)

[drmalaka]

Gas is too cheap and always has been. We should have been taxing gas at $2 a gallon for the last two decades. OPEC just got us addicted to cheap gas and now we are screwed. It was like crack, when it first came out the drug dealers gave it away for free, a few month later everyone was addicted and would suck anyone off in an alley to get some cash to buy some more.

I am as anti tax as any person around, but to me this is not a tax, this is a national security issue, period. We are dependent on oil and the main supply of oil comes from the arab countries. These countries are outright our enemies (Iran) or pay to support our enemies (Saudi Arabia). The more oil we use the more we hurt our national defense and weaken our country.

Americans who are getting hurt of gas are getting what they deserve. Everytime I see some jerk driving alone in his Ukon or Hummer I laugh at their $100 gas bill. Good. That jerk is funding terrorism and damaging our country.

The other problem is that regardless if gas is cheaper relative to in the past, which it is when we drove cars that got 6 miles to the gallon, Americans need gas cheaper becuase they need money to buy crap that the television and magainzes tells them is cool. We are addicted to oil and buying crap we do not need. For some reason gas needs to be cheap becuase it is a necessity so that we can buy all those luxuries that every middle class person is entitled to.

The American consumer is a joke and a little baby. In our societies made up of victims and individuals we are entitled to everything but have to suffer for nothing.

[ssross]

Compare what it takes to bring a gallon of gas to market. Drill down thousands of feet in treacherous oceans or go to some dangerous land (Nigeria, Iraq), expensive voyage back here, refine under onerous environmental and governmental regulations, tax it to death under state and federal - for $3.56.
Or, you can buy a gallon of water for $2. Take a truck to a neighboring city's reservoir and fill and bottle.
Gas prices are remarkably low.

[pockyclips 2020]

Hum, let's see. I was paying $ 0.75/gallon for gas in '80; am now paying $3.55. 5 times as much to go twice as far still sounds like the s**t end of the stick to me. This sounds like the same horse hockey the API (American Petroleum Institute) comes out with every quarter on how we're still paying less for gas than in 1982 (adjusted for inflation, of course).

This guy was probably at the energy grand pooh-bah meeting at the White House in Aug 2001, when they were planning 9/11 and the Saddam take down! The big oil companies had to get the price of oil above $35/barrel to make a profit on the Caspian Sea development.

[devassocx]

drmalaka, you sound like a true luddite.

This country and our advanced society runs on energy and the cheaper and more plentiful the energy is, the better off we will be economically and every other way.

It isn't a matter of 'gasoline' or any other energy source being a
subjective bargain that is important.

How do we get cheaper energy? I'll leave that to the guys that
make the big bucks and are charged with that problem. Goodness
knows, we have a ton of them in our government(DOE).

Rationalizing the problem by saying 'its a bargain' or other types of
manipulation is just sidestepping the issue. And we don't need
the Jimmy Carter approach of putting on a sweater and turning a few
lights off.

[seesaw]

You Americans don't know what is the high cost of gasoline is and you should be paying more money and rethink your attitude of using one-quarter of the Earth's supply of oil when you only have 4% of the world population! Put on a sweater and turn off your lights or change to compact fluorescent lamps. So many mean Conservative Republicans still don't understand yet. Geeze.