What Happened to $5/Gallon Gasoline?

Well, it looks like the dire predictions about gasoline simply aren’t going to materialize. In looking at the Daily Fuel Gauge Report the national average for gasoline is $2.813, and in looking at the state data there appears to be no evidence of run-away gasoline prices. Oh well, another Doom-n-Gloom prediction bites the dust.

FILED UNDER: Economics and Business, Natural Disasters,
Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. Lurking Observer says:

    But, Steve, this would be the perfect time to impose a $2/gallon tax on gas, so that SUVs disappear!

    In fact, since everyone’s expecting $5/gal prices, maybe they should impose $5/gal taxes, so that people flee internal combustion even faster?!




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  2. Fersboo says:

    It must have been another Rovian plot to make the MSM and Democrats look bad.




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  3. DL says:

    The Marketplace is a cruel master. Today’s expert is tommorrow’s fool!

    I somewhat remember in 1982? The Carter inflation of the 70s had driven the prime lending rate to near 20. The financial papers were all quoting the money supply/prime rate expert (forgot his name-Wojhower?) who was predicting that it would go straight up to 40 and it would probably do us in. It dropped like a rocket and kicked off the best long term bull market in decades. (the Dow was below 1000)

    With markets, when everyone is right and everyone is scared, they are probably wrong!




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  4. Herb says:

    The fact that more and more States have launched investigations into price gouging by the oil companies is having an effect on the price of gasoline. The additional fact that high gasoline prices are starting to show up in the entire economy decline.
    While there are some refinery’s that have had damage from Katrina and Rita, I was quite surprised to hear that most refinery’s will be up and running by the end of the week. This in spite of earlier predictions from the oil companies that gasoline production would take 2 to 4 weeks to get back on line. The Governor of Texas as well as others have said, during TV interviews, that there is “Plenty of Gasoline”.

    Yesterday, A Saudi Oil Minister said that “there is no shortage of oil” and that OPEC has offered 2 million barrels per day to the market following Katrina, and there were no takers. This along with the 60 million barrels offered by the DOE from the Strategic Petro Reserves with only 11 million taken since Katrina.

    The big question now is. Why are crude oil prices remaining high? There is “No Shortage” so the supply/demand argument holds no water. Now where is the decline in crude prices?

    It appears that the Truth is, while the Katrina/Rita excuse is now in full bloom, the oil companies are going to keep the gasoline price high.
    As for the supply and demand thing with gasoline, while the theory might be good, but when the entire supply is controlled by the oil companies, it doesn’t work. What we need is possible intervention from an outside source on the supply side. In other words, some competition for the US oil companies.




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  5. Steve Verdon says:

    The fact that more and more States have launched investigations into price gouging by the oil companies is having an effect on the price of gasoline.

    I really doubt that Herb. Sure prices are high, and sure they could be lower with more competition, but that isn’t going to be addressed in a price gouging investigation. Here, I’ll make a bold prediction: Virtually nothing will come of any price gouging investigation outside of perhaps Texas and Louisiana.




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  6. Herb says:

    Steve:

    Sadly, I think you are right. The fact that no one in the House of Representatives or the Senate is saying anything about high gasoline prices, is an indication that no one in Washington is interested in the high price the citizens are paying for gasoline. Could that fact be because of the untold amounts of money that flows as campaign contributions to both Democrats and Republicans.

    No Steve, the only thing that is going to get Washington’s ear will be a big slowdown in the economy and I believe that will come this holiday season when the shoppers will cut dramatically back on their holiday spending because of high gasoline prices.

    But again, I ask, “Why has the price of crude remained high in spite of the excess amount of crude available”?

    Remember that only a few short months ago, crude started a rapid rise in price, because of a shortage and that was the reason provided by the oil companies for the rapid rise in the price of gasoline.

    There sure a lot of questions about the high gasoline prices everywhere, but there are very few answers that hold any water.




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  7. odograph says:

    I’m not sure all the news has been digested … or if “current prices” are the whole story. This FT article implies some downstream problems:

    http://news.ft.com/cms/s/034a384e-2f8a-11da-8b51-00000e2511c8.html




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  8. odograph says:

    By the way, on fuel consumption in general – I’ve had big V-8s. I’ve had them connected to 5 and 6 speed manual transmissions. They are fun. But to think they are the only source of fun, or some kind of Constitutionally guaranteed fun, is kind of silly. I think my mountain bike is even more fun, and it doesn’t burn gas. It doesn’t even cause that much trail damage ;-).

    So a Prius and a Mountain Bike works for me.




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  9. Herb says:

    Thinking more about the pricing of gasoline, about 6 months or so ago, the price of gasoline started to climb. The reason for the rise was simply put to the American people that “There is an oil shortage because of the additional demand from Asia and especially China was putting on available supply”. (You know, the Supply/demand thing) So, with a “short” supply, the price of gasoline climbed. We seen crude oil prices rise from $ 30.00 plus dollars per barrel to a record of a little over $ 70.00 dollars per barrel a few days ago. In short, the price of gasoline was predicated on the price of a barrel of oil.

    Now, with the supply exceeding the demand, we see the price hovering around the $ 63.00 to $ 67.00 dollars per barrel. The supply increased, but the price did not.That does not make sense and the only conclusion one can make is that the supply/demand excuse was just that, An excuse. It lacks all common sense to have or let the oil companies price gasoline on the speculated price of a barrel of oil. We now have absolute proof that supply/demand was a sham (fraud) perpetrated on the American people.

    It occurs to that the oil companies would do better if they priced their product (gasoline) on their costs plus profit like most manufacturers do. That way everyone could understand whats going and it could totally eliminate the possibility of price fixing and price gouging. I think most everyone knows that the oil companies are not paying the speculation price for crude and that difference (Actual price and futures price)is where the record profits of the oil companies comes from.

    With the pricing method now used, it is very easy for anyone to see why the oil companies are under investigation. And, I have just seen that there are some members of Congress (House and Senate) beginning to ask a lot of questions. Finally.




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  10. Steve Verdon says:

    Now, with the supply exceeding the demand, we see the price hovering around the $ 63.00 to $ 67.00 dollars per barrel. The supply increased, but the price did not.That does not make sense and the only conclusion one can make is that the supply/demand excuse was just that, An excuse.

    It isn’t quite that simple Herb. There is also refining. You can’t put oil in your gas tank, so the price of oil, while definitely a significant factor, it isn’t the only factor. Add on the boutique blends and can get some pretty volatile prices.




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  11. LJD says:

    Oh here we go with the burn the SUVs and ride your bike argument. Well folks, here in NH there’s not a lot of bike riding going on for many months of the year.

    I’m all for more efficient vehicles, and alternative fuels, but you have to realize there ARE trade-offs. Look at the environmentalists fight AGAINST nuclear power proposed to stop combustion generated power. Look at the fight againstwind power, to save the pristine hilltops and flight paths of migratory birds. Look at the fight against hydro-power. I’ve heard it all.

    So now this Prius is such a godsend. Just wait until the batteries start piling up. Wait until we see more heavy metals, cyanide compounds, etc. in groundwater. Just wait.

    If some one wants to be a true environmentalist, they should really do some research and know the trade-offs of their choices. The idea that there is some perfect solution is naive.




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  12. Herb says:

    Steve:

    I think there was a misunderstanding about what I was trying to say.

    Prior to Katrina, all we heard was that the price of crude oil was the guideline used to price gasoline. As we saw crude price increase, the gasoline price increased. The supply/demand excuse (for crude)was the reason given for the increase of crude with a consequence of a rise in the price of gasoline.

    Now, with an excess of crude available, and no takers, the price of oil should decrease. That is not happening. Instead, the price remains about 63 to 67 dollars per barrel.

    Where is the decrease in the price of Crude?
    Remember there is an excess of crude. If supply/demand applies, there should be a decrease. There is no decrease. So, the supply/demand issue that existed prior to Katrina was just an excuse to increase crude/gasoline prices.

    I have just read an article that come from the big Oil gathering in Johannesburg quoting the following from Ray Tillman, President of Exxon/mobile. “There are an estimated 3 Trillion, yes Trillion barrels of reserve available” and “There are an estimated 7 Trillion barrels yet to be discovered” “The 3 trillion in reserves is more oil that has been brought up in all of history” And
    The Saudi Oil Minister was quoted ” We have an excess of oil, give us the customers and we will supply the oil”

    Now Steve, We do have an overabundance of oil available, so, where is the crude price decrease?

    And again remember, the so called shortage of oil was the reason given for the crude price increase prior to Katrina, and the consequential gasoline price increase.

    If you think in terms of Pre Katrina/Rita and post Katrina/Rita, then I hope you can see where I am coming from. In other words, Pre Katrina crude price increases predicated on low supply are now wiped out by an excess of oil, so, there should be crude price decreases in direct proportion to the excess supply we now have and are likely to have in the foreseeable future. With the excess supply, then all the increases pre Katrina should be wiped out to the price several months ago when so called supply was not available.

    If the prices do not decrease, then one can only conclude that “Price Gouging” was and is going on.




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  13. odograph says:

    So now this Prius is such a godsend. Just wait until the batteries start piling up. Wait until we see more heavy metals, cyanide compounds, etc. in groundwater. Just wait.

    According to Toyota: 1) no prius batteries have worn out yet. 2) a recycling procedure is in place, the material is valuable and 3) they’ve put a big sticker on the battery with a trade in value, a few hundred bucks, to make sure whoever tears the car apart will turn them in.

    As far as more efficient snow cars, Subarus have always been popular. The only problem is that in city driving they match current US fleet mileage. They don’t reduce our dependence on imported oil.

    I read in the Prius forums of some people using them in snow states, but I don’t know. I’m in southern California, where some people think they need a shiny waxed Hummer H2 to go to the mall.




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  14. odograph says:

    BTW, it was a little bad for someone to say “do your research” who didn’t know … didn’t do the research … on the batteries.




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  15. Herb says:

    I don’t understand you guys out in California, First you insist on the most stringent environmental regulation for automobiles, You have to use the so called boutique blends, you have to drive around is those small cars that crumble with the slightest fender bender and yet you still complain about the environment as well as the price of gasoline. You brought this gasoline thing on yourselves and pay the highest price for cars and gasoline. Now you got what you wanted, so don’t complain and don’t try to shove you EV wacko ideas off to everyone else in the country. Have you ever heard

    “You made your bed, now sleep in it”




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  16. odograph says:

    Well, first of all it is wrong to assume that anyone in particular wanted what we got. We have a particulary dysfunctional state governement – or maybe that is redundant.

    As far as the best, where’s the beef? I haven’t complained about gasoline prices. I actually think they are a good thing given the known problems we have with oil and national security, as well as the known environmental problems.

    One thing I do notice here is that people on the political extreme, who have “bundles” of beliefs granted to them by their Party, have a hard time relating to people who take issues one by one, and try to decide by the merits.

    Hybrids are good, and if you’ve got the money (we rich California Republicans do), then there isn’t really a downside. AFAIK wind power is good too. I have a bit of a discomfort with nukes, but about 25% of my power acutally comes from San Onofre, and I’m not calling for it to be shut down. So anyway … beware of your “bundles.” They don’t apply to non-ideologes.




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  17. odograph says:

    Sorry, missed a typo “as far as the best” should be “as far as the rest”




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  18. LJD says:

    I am very familiar with San Onofre, the Livermore Valley, the struggle over the Colorado River, and all of the other things Californians debate to satisfy their enormous energy apetite.

    You entirely missed my point. I was largely adressing the crowd that wants to burn down SUV dealerships (great for the environment) and make everybody take the bus. Unfortunately, we do not have busses in our rural community. And have you ever hauled cord of wood in your Prius?

    The Prius is a step in the right direction by the manufacturer. It is a good solution for some people (the Hummer owners you mentioned) to reduce the overall fuel demand, until something better comes along. It’s good for areas of urban sprawl, like Tijuana to Malibu, where you can cut the air with a knife.

    But I don’t buy wholesale the sales pitch coming from those who manufacture the car. It’s simply too early to tell how these things will endure.

    Ironically, some people don’t think their Prius, Birkenstocks, PETA flyers, or rice cakes have any environmental impact. That is just totally naive and stupid.




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  19. odograph says:

    If you base your politics on the fantasy that there is a “crowd” of such people, there is not much I can do, is there?

    But since we are having fun with sterotypes I’ll tell you what I hate … pear shaped people sliding out of big SUVs, and waddling into the mini-mart to buy another big-gulp and some junk food.

    And I’ll bet you $5 that crowd is bigger than the one protesting SUVs.




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  20. Steve Verdon says:

    Now, with an excess of crude available, and no takers, the price of oil should decrease. That is not happening. Instead, the price remains about 63 to 67 dollars per barrel.

    What do you mean no takers? Has oil consumption really gone down? Show me the data Herb.




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  21. Herb says:

    Steve:

    The “No Takers” came from a quote by the Saudi Oil Minister during the big oil meeting held in Johannesburg.

    You can find the entire quote and some quotes by Ray Tillman, Pres. of Exxon/Mobil. Try this site
    http://news.independent.co.uk/business/news

    let me know if you find it or not. Thanks.




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  22. odograph says:

    Hmmm … might need to readjust those stereotypes:

    “We are seeing people who are driving $40,000 Suburbans trading them in on $15,000 Corollas,” said Mathews, who manages a dealership in a state where big trucks and sport-utility vehicles rule the roads. “The last 30 days have been unlike anything I’ve ever seen in the automotive industry.”

    more here




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  23. LJD says:

    Debating a liberal is like a game of whack-a-mole- a constantly moving target.
    Avoid the issues, change the goalposts, add some hypotheticals…




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  24. odograph says:

    You nitwit, I am a lifelong conservative and Republican … I am just not a straightjackeded ideologue of a conservative Republican.




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  25. odograph says:

    By the way, it was my impression that I was following you guys on your twists and turns. I started after all, just by saying what worked for me.

    But if you’d like to stand, why don’t you back this up:

    “I was largely adressing the crowd that wants to burn down SUV dealerships […]”

    Please prove that there is a crowd out there that wants to burn down SUV dealerships.




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