Oil Price Impact in Perspective

In the 1980’s it took almost 14% of disposable income to fuel one’s car for 15,000 miles per year.  Now it takes about 7%.  Granted that is up from 3% a few years ago, but it still is not enough to be anywhere near what American’s endured in the ’80’s.   The following very insightful analysis by Mark J. Perry with important help from Warren Meyer is well worth one’s time to read and then ponder. 

Thursday’s CD post of a graph of 1,000 gallons of gas as a percent of per-capita disposable income (top graph above) shows that we’re still nowhere near record highs for gasoline, when measured as a share of income.

Warren Meyer at Coyote Blog thoughtfully suggested adjusting the analysis to account for the significant increases in fuel efficiency over time, see middle chart above, which shows the 64% increase in fuel efficiency from the early 1980s to 2005.

The bottom graph above shows the results of Warren’s analysis (see his chart here), which calculates the percent of per-capita disposable income required to buy enough gasoline to drive 15,000 miles, at the average fuel efficiency in each month from 1980 to 2008. This adjustment for increased fuel efficiency makes the initial results even more dramatic.

After adjusting for: a) higher incomes and b) greater fuel efficiency since 1980, we are nowhere near record highs for gas. In fact, to match the 13.75% level in 1980 when average fuel efficiency was only 16 mpg (and gas was $1.26 per gallong and per-capita disposable income was $8,575), gasoline today would have to reach $7.53 per gallon, almost twice today’s prices!

Bottom Line: Gas prices today are almost 50% below the record highs of 1980, after adjusting for higher incomes today and much greater fuel efficiency

Comments

[Joules Burn:]

Interesting point. But to be accurate, you should conclude by saying that gas COSTS for DRIVING are 50% below their highs in the 1980s. Prices are slightly higher, and the driving of cars doesn't account for all of the oil costs in the economy.

Something else to look at would be the gas costs relative to the median income as opposed to the per capita GDP (which will be skewed towards high earners).

Finally, there is the airline industry. There has been a rather pronounced increase in efficiency there to:

www.airlines.org/econo...

So, what's the big deal? Mostly that their (until recent) prices were designed for the fuel costs of a few years ago. The question will be whether their business model can change as fast as future fuel price increases.

2008 Jul 14 01:56 AM

[bindlepete:]

In 1980 the issue of high cost oil was being addressed and " peak oil" was well understood by the policy makers. After Reagan who said no more on this issue "we want to be good trading partners" and killed all efforts to improve efficiency for short term gain, we lost all momentum for corrective action.

Now we are in high organic and our nation has increased vulnerability to a full scale, and perhaps uncorrectable, depression. Hyper inflation and a further destruction of a middle class may well be in the cards.

This is important if one has children or any sense of future welfare. We were given adequate warning but the "me now" world view of the Republicans have led us far into a dark tunnel.

2008 Jul 14 11:40 AM

[fran:]

what does EPA rating[miles/gal] have to do with actual commute cost in most metropols? have you driven/lived in Atlanta/LA/Wash DC--N. Va. this and several other points[e.g. median income, above] relating how people actually live might shed more light and credibility.

2008 Jul 14 01:08 PM

[Cash_and_Fetal:]

You want to see PROOF that Oil pricing is a "SCAM".....

Take a look at some of the futures prices of a barrel of oil.

futures.tradingcharts....

Do you see a pattern there?

Look at the 2012 future prices for a barrel of oil...they are trading in the $70's

2012 will be "election season"....

Speculators don't want to touch buying it...if we were really living in a "tight" market....and $150/$200 a barrel is here to stay...That's the BEST deal OF THE CENTURY you could find, you could TRIPLE your investment in 4 short years...what other investment exists with that kind of "guarantee"...A 300% return in 4 years....?!

Why are people not buying up those futures contracts as fast as
they can?

Because the price is FALSELY inflated....and Oil Pricing is a SCAM manipulated on the ICE markets.

Has EVERYONE completely forgotten (or IGNORED) history? We've seen this EXACT SAME THING when Enron was around.
They were the Market makers and they manipulated the market to their whim......it is the EXACT same thing ICE is doing.

Eliminate the Graham/Enron loophole, put more transparency on ICE Markets, and a price of a barrel falls in HALF, OVERNIGHT

I'll bet EVERYTHING I OWN on it.

2008 Jul 14 05:36 PM

[Cash_and_Fetal:]

If you didn't believe me with my first teaser....trying reading these articles...

About ICE,IntercontinentalEx... Inc.


Ice, Ice Baby Part 1
www.star-telegram.com/...

Ice, Ice Baby Part 2
www.star-telegram.com/...


Here are some teaser quotes:


When Enron failed and took its private, unregulated energy exchange to the grave, another rose to take its place. The Intercontinental Exchange (ICE) was the brainchild of
Morgan Stanley,
Goldman Sachs,
British Petroleum,
Deutsche Bank,
Dean Witter,
Royal Dutch Shell,
SG Investment Bank and
Totalfina.

In 2001 ICE purchased the International Petroleum Exchange in London; renamed ICE Futures, it now operates as an "exempt commercial market" under section 2(H)(3) of the Commodity Exchange Act. As the Senate hearings pointed out in the summer of 2006, "Both markets operate outside of any CFTC oversight."

www.star-telegram.com/...
We started as a society that worships hard labor and the basic business ethic of building value into the goods you create. How’d we get from there to worshiping Wall Street’s billion-dollar boys — who create nothing, build nothing, own nothing and deliver no goods, and yet can throw so much money into products made by others that they determine what we consumers will pay for those goods?

Oil Movements tracks every tanker at sea, from both OPEC and non-OPEC oil countries, along with their cargoes’ final destinations. Anne O’Shea responded immediately to my request with their report dated May 8, 2008. Just so you will know, oil shipments are up from a year ago in almost every class, including Middle East oil in transit and Non-OPEC in Transit. The only class of oil shipment that has declined is covered on page 3 of that report. That chart is labeled, "4-Week Changes in Westbound Oil at Sea."

That’s right, shipments of oil headed west have shown serious declines during the month of April, down 800,000 barrels per day in the week before the publication of the report


This is EXACTLY what Enron did when it's Electricity Manipulation, Turning off power grids to falsely inflate demand on other grids....

2008 Jul 15 08:24 PM

[investor88:]

There is an article in cnbc.com which says at usd140/barrel, the proven oil reserves of the Saudis and Iranians [total 400bn barrels] can buy up all the assets of the USA. One implication is that oil is overpriced and long term futures of usd 70 seems to support this view. However Jim's article above suggest oil can advance further as people can afford it, plus there is Matt Simmons' theory of peak oil. The market will sort this out and price oil accordingly I suppose.

2008 Jul 19 09:10 AM