Gasoline. Gouging?

[Annie]

Lots of links:

http://volokh.com/archives/archive_2006_05_14-2006_05_20.shtml#1147787458

[Jonathan Adler, May 16, 2006 at 9:50am] 1 Trackbacks / Possibly More Trackbacks
Gasoline Affordability Revisited:

Last week, relying on data posted by Indur Goklany on The Commons Blog, I claimed that gasoline is "more affordable than ever," despite the increase in real and nominal gas prices. Some commenters objected that this generalization is misleading due to a rise in income disparities. The price-to-income ratio for the average American may have dropped, largely because the rich got richer, without equivalent affordability gains for the poor.

Glen Whitman at Agoraphilia investigates this claim by examining the price-to-income ratio by quintile from 1973 to the present, and finds that even for the poorest fifth, gasoline is cheaper than it was at its peak.

So what can we see? Even looking at the poorest fifth of the population, the fraction of income required to buy gasoline is still lower than it was in the early '80s. Not surprisingly, the fraction has risen a great deal over the last few years, but it still has not surpassed its historical peak. The same holds true for every other income quintile, but the effect is more muted, since higher income means any given price difference will correspond to a smaller fraction of income. (If gas prices stay at their current price of about $2.90/gallon, however, then we could pass that early-80s high-water mark this year.)

Related Posts (on one page):

1. Gasoline Affordability Revisited:
2. The Affordability of Gas:

37 Comments

 

[BaronVonBigmeat]

One of the interesting things I've seen (I'll try and find it again) was a chart showing how expensive gasoline is in terms of gold cost. Currently, it's not the cheapest it's ever been...but a great deal of the cost is related to the decline of the dollar in recent months.

 

[Diuretic]

The experience in Australia is that fuel is just expensive. Our dollar is pretty consistent in its relationship to the major currencies but the fuel prices here are sky high. For us at least it has nothing to do with international currencies, the price of petrol on the international markets is high and the suppliers, as they do, are passing on the cost to us. A litre of fuel here will cost about $A1.45 where I am (a state capital city).

So today a gallon of super fuel where I am would cost $4.34 (US). I understand it's even more expensive in Europe.

I think my calculations are right (I'm useless at maths).

The Australian dollar today is worth 0.7692 US cents (Reserve Bank of Australia http://www.rba.gov.au/Statistics/exchange_rates.html) and 1 gallon=3.78 litres.

We're screaming too but we keep getting told that the price of fuel on the overseas market (I think ours is done through Singapore) is just expensive and that the fuel companies are not ripping us off (govt is though but that's our problem).

 

[Said1]

The experience in Australia is that fuel is just expensive. Our dollar is pretty consistent in its relationship to the major currencies but the fuel prices here are sky high. For us at least it has nothing to do with international currencies, the price of petrol on the international markets is high and the suppliers, as they do, are passing on the cost to us. A litre of fuel here will cost about $A1.45 where I am (a state capital city).

So today a gallon of super fuel where I am would cost $4.34 (US). I understand it's even more expensive in Europe.

I think my calculations are right (I'm useless at maths).

The Australian dollar today is worth 0.7692 US cents (Reserve Bank of Australia http://www.rba.gov.au/Statistics/exchange_rates.html) and 1 gallon=3.78 litres.

We're screaming too but we keep getting told that the price of fuel on the overseas market (I think ours is done through Singapore) is just expensive and that the fuel companies are not ripping us off (govt is though but that's our problem).

There is a site I like to watch that records the highest and lowest gas prices over a 24hr period in Ottawa.

Last 24 hrs

$1.12 L
$0.83 L

 

[BaronVonBigmeat]

The Australian dollar today is worth 0.7692 US cents (Reserve Bank of Australia http://www.rba.gov.au/Statistics/exchange_rates.html) and 1 gallon=3.78 litres.

The US has dramatically expanded it's money supply in the last 5 years to cover huge deficits. But so have many other countries, including Australia, Britain, and China, IIRC. If both go up, then the ratio stays the same, but of course there is no new oil being created by mother nature. So, some of the cost of gas (and gold, silver, palladium, platinum, copper, steel, zinc, etc.) is due to inflation. There's several other reasons too though, this is just one.

 

[Diuretic]

The US has dramatically expanded it's money supply in the last 5 years to cover huge deficits. But so have many other countries, including Australia, Britain, and China, IIRC. If both go up, then the ratio stays the same, but of course there is no new oil being created by mother nature. So, some of the cost of gas (and gold, silver, palladium, platinum, copper, steel, zinc, etc.) is due to inflation. There's several other reasons too though, this is just one.

My economic knowledge is rudimentary but I think you're pointing out that when demand exceeds supply we get inflation?

Now on the other point, if you believe our government then everything's hunky-dory. The budget is in surplus, the Treasurer just handed down a budget where nearly everyone got a tax cut. Our economy is supposed to be booming (short-term resources boom, raw materials are high now because China is gorging on them - that will end soon). However what they aren't being clean about is the worst trade deficit we've ever had. Not your problem, ours, but symptomatic of short-term thinking. Buy votes for the next election and no thinking past the current electoral cycle (3 years federally in Australia).

Oh and behaviour relative to fuel price is changing. People are winding back discretionary use of their private vehicles due to the high price of fuel. That will no doubt have a knock-on effect.

 

[sitarro]

When compared to almost anything, gallon for gallon, gasoline is rediculously inexpensive. When you factor in the amount of work per gallon gasoline at 4 dollars a gallon is cheap. We have been spoiled for many years.

I worked in the oilfield 20 years ago and it is a very expensive,no sure thing, labor entinsive prospect. I have been on a semi-submersible rig 130 miles offshore in the middle of the night while it was sleeting and 23 degrees out. Those guys never even slowed down. I have been on rigs with 6-10 seperate companies out there and watched as they drilled for 30 days and hit a dry hole. This was in the 80s when the rig itself rented for $110,000 a day. Add all of the crew, their food, the other service people, their food, the lease for the drilling site, OSHA regulations, the drill pipe and bits, the mud, helicopters, supply ships..........and a dry hole?

If you do hit oil there is the transport cost and refining to get gasoline, the transport cost to each station, the cost of the station.......can you think of anything else that is so cheap as a final product? Starbucks? Water?

I hate paying the high cost in comparison to what we used to pay......I remember paying as low as 26 cents a gallon before that idiot Carter got into the Presidency.......but what isn't expensive? I just saw Canada Dry sparkling water in the store for 1.49 a liter last night, that is 5 dollars a gallon!!!!!For fizzy water!!!!!!

 

[Powerman]

When compared to almost anything, gallon for gallon, gasoline is rediculously inexpensive. When you factor in the amount of work per gallon gasoline at 4 dollars a gallon is cheap. We have been spoiled for many years.

I worked in the oilfield 20 years ago and it is a very expensive,no sure thing, labor entinsive prospect. I have been on a semi-submersible rig 130 miles offshore in the middle of the night while it was sleeting and 23 degrees out. Those guys never even slowed down. I have been on rigs with 6-10 seperate companies out there and watched as they drilled for 30 days and hit a dry hole. This was in the 80s when the rig itself rented for $110,000 a day. Add all of the crew, their food, the other service people, their food, the lease for the drilling site, OSHA regulations, the drill pipe and bits, the mud, helicopters, supply ships..........and a dry hole?

If you do hit oil there is the transport cost and refining to get gasoline, the transport cost to each station, the cost of the station.......can you think of anything else that is so cheap as a final product? Starbucks? Water?

I hate paying the high cost in comparison to what we used to pay......I remember paying as low as 26 cents a gallon before that idiot Carter got into the Presidency.......but what isn't expensive? I just saw Canada Dry sparkling water in the store for 1.49 a liter last night, that is 5 dollars a gallon!!!!!For fizzy water!!!!!!

Great post.

Gasoline is absurdly cheap. Anyone who claims that they are price gouging is just being silly. Gas companies don't control the price of gas anyway. There are a number of factors that determine the price of gas, all of which are out of the control of the gas company. They would happily sell it to you at 70 cents a gallon if it would net them a good profit. They have a responsibility to their share holders to make money just like everyone else folks.

And one of the reasons that the price of gas is high is because of increased demand in Asia. Do any of you here complain about all of the ridiculously cheap goods you get because of cheap Asian labor? I don't think so. Gas and energy make up a much smaller part of the average American's budget now than it did 25 years ago as well. Down from 1/10 to 1/16th of the overall budget. So even at 3 dollars a gallon it's absurdly cheap when you look at the situation objectively.

 

[Mariner]

we ridicule him, was ahead of his time in some ways, and if we'd stayed his course, we'd likely not be at war in Iraq. He managed to reduce our oil consumption from 9 to 7 million barrels per day. We're up to 13.5 million now.

I agree that he lacked a certain necessary charisma, but his diagnosis of our overdependence on foreign oil and his actual success in reducing that dependence deserve appreciation.

Mariner.

 

[BaronVonBigmeat]

Strangely enough, the move to deregulate oil and gas markets (sorry, don't remember the details of what all that entailed) was begun late in the Carter administration, contrary to popular perception. Prices began to fall shortly after Reagan took office, so he is generally credited with falling gas prices.

 

[Powerman]

we ridicule him, was ahead of his time in some ways, and if we'd stayed his course, we'd likely not be at war in Iraq. He managed to reduce our oil consumption from 9 to 7 million barrels per day. We're up to 13.5 million now.

I agree that he lacked a certain necessary charisma, but his diagnosis of our overdependence on foreign oil and his actual success in reducing that dependence deserve appreciation.

Mariner.

Obviously you don't understand how this works.

Oil is a fungible commodity. So if we would scale back our oil consumption, developing countries would purchase whatever oil we decided not to.

If anything the solution to the problem would be to start drilling the massive amounts of oil off of our own coasts.

But reducing oil consumption would certainly not reduce the oil revenues from middle eastern countries.

And BTW we aren't in Iraq because they have oil. The amount of Oil Iraq has is a drop in the bucket compared to the cost of the Iraq war. Anyone who thinks we are in Iraq because of Oil is simply uneducated on the matter and needs the facts crushed into their heads via violence if necessary.

 

[Powerman]

This dilbert cartoon is excellent by the way

http://pag.csail.mit.edu/~adonovan/dilbert/dilbert-19-02-2006.gif

 

[Diuretic]

<snipped>
And BTW we aren't in Iraq because they have oil. The amount of Oil Iraq has is a drop in the bucket compared to the cost of the Iraq war. Anyone who thinks we are in Iraq because of Oil is simply uneducated on the matter and needs the facts crushed into their heads via violence if necessary.

Since you bring it up.

Iraq has the world&#8217;s second largest proven oil reserves. According to oil industry experts, new exploration will probably raise Iraq&#8217;s reserves to 200+ billion barrels of high-grade crude, extraordinarily cheap to produce.

http://www.globalpolicy.org/security/oil/irqindx.htm

Now, think carefully. Who or what is bearing the cost of the invasion and occupation of Iraq?

Now think carefully again. Who or what stands to gain from securing the second largest oil reserves in the world?

I shall check your answers later.

 

[Powerman]

Well the revenue is currently going to Iraq, not us.

If we wanted to conquer and take their oil then why are we wasting all this time rebuilding everything?

Wouldn't we need to go to war with them again if we were in it for the oil?

I don't think they are just going to fork it over to us

 

[Diuretic]

Well the revenue is currently going to Iraq, not us.

If we wanted to conquer and take their oil then why are we wasting all this time rebuilding everything?

Wouldn't we need to go to war with them again if we were in it for the oil?

I don't think they are just going to fork it over to us

Yes revenue is going to Iraq. And the oil companies haven't had it so good in terms of profits.

The plan was never to take their oil, just secure it for vested interests (see above).

The rebuilding is necessary if the West is going to maintain a large military presence to make sure there's no backsliding by the domestic govt and to ensure that the oil interests are protected from threats from outside Iraq and from insurgents within.

This obviates the need to go to war with them again because the West will simply not leave Iraq.

Of course they're not just going to fork it over to foreign governments, that was never the intention. Remember that it was the West that invaded, western governments have market economies, they'll allow the multinational oil companies to do their thing.

 

[Powerman]

Yes revenue is going to Iraq. And the oil companies haven't had it so good in terms of profits.

You do realize of course that these 2 statements don't have anything to do with eachother don't you?

Why even mention the 2 if there is no correlation? Just to be a cocksucker? I don't get it

 

[Mariner]

you wrote:

"Oil is a fungible commodity. So if we would scale back our oil consumption, developing countries would purchase whatever oil we decided not to."

But we wouldn't care so much what happened in the middle East if we weren't dependent on its oil. We'd be as little concerned with a dictator in Iraq as we are with dictators in Africa or South America, and it's highly unlikely we'd be spending a trillion dollars (total estimated cost) to invade, occupy, and try to stabilize Iraq.

As for drilling off our own coasts, the problem is that oil is lousy, dirty business, and it's high time we moved ourselves beyond it. The Exxon Valdez disaster brought home to everyone just what such drilling would mean. Even the president's brother opposes drilling off his state's coast, out of environmental concern.

We ought to be the world's leader in living as energy-efficiently as possible. Not only would we thereby help stave off global warming, but our green industries would make fortunes as the developing world expands. As it is, GM's going to its grave making old fashioned SUV's and gas guzzling muscle cars, aided by a president who can't even raise fuel economy standards one notch. Businesses will of course catch up eventually, but gov't leadership would have placed us at the forefront, rather than behind the pack.

Mariner.

 

[Diuretic]

You do realize of course that these 2 statements don't have anything to do with eachother don't you?

Why even mention the 2 if there is no correlation? Just to be a cocksucker? I don't get it

Of course you don't get it, you haven't read the talking points yet. Read up and get back to me.

In the meantime....the oil is locked up but it's guaranteed. The price of oil is up because of the demand for it from certain economies and it's supply is controlled by OPEC, a cartel.

 

[fabb1963]

Of course, if you want really cheap gas, just drop by Hammond, Indiana.

http://apnews.excite.com/article/20060522/D8HOPT9O0.html

 

[cslaughlin13]

Mariner, while I do agree with the fact that we should be the most economical with power, etc., the problem is that alternatives are so expensive and at times use more gasoline than jus fueling cars would. For example, people keep saying that hydrogen is the way to the future, and i do agree, bu tit is so far in the future that the only thing right now for us is gas.