Doom! Gloom! The Sky is Falling!
April 13th, 2004 | by Craig |Almost everyone is in high dudgeon over the price of gas. And, just this morning, the Guess-At-It jumped on the bandwagon with this lengthy article about the rising prices.
Regular Unleaded here in Billings is $1.75, and Premium Unleaded is $1.95. Mid Grade and Diesel are right in the middle of that range.
What almost no one seems to mention is that these prices are in 2004 dollars.
There’s a really nifty calculator from the Federal Reserve Bank of Minneapolis that will let you plug numbers in, and see what today’s prices are in real dollars.
I happened to work at a convenience store for the summer in 1991. I remember well that the price of gas peaked during that summer at around $1.43 or so.
Given that figure, and adjust it for 2004 dollars, and the price of gas then would have been $2.09! When you look at it that way, the price of gas is actually lower than it was 13 years ago.
Have a look at this chart, which shows the nominal and real amounts we have been paying for gasoline. While the nominal price has been tending up, the real price is actually fairly constant.
The story mentions the “unabated demand” for fuel.
What the story doesn’t mention is that the real problem in the U.S. is lack of refining capacity. No new refineries have been built in 20 years or more. Not only that, but much of the production capacity has been hampered by the mandates of governments to have special blends of fuel, such as oxygenated fuel, or fuel mixed with ethanol. Each time a refinery needs to make a new blend, they have to reconfigure the whole refinery, which takes it out of production for quite a while.
The cost would likely come down if we were able to add some production capacity.
What do you suppose the odds are of that?
4 Responses to “Doom! Gloom! The Sky is Falling!”
By Sarpy Sam on Apr 13, 2004 | Reply
Then the same people that complain that gas prices are too high can’t figure out why people still buy and drive “gas-guzzling” SUV’s. Obviously the SUV drivers realize that comparativly, gas prices aren’t that bad right now.
By bonnie on Apr 13, 2004 | Reply
Can you imagine what it would take to permit a
refinery? By the time you got the red tape all
over with, you wouldn’t have any money left to
build the plant.
By Ghost Dog on Apr 13, 2004 | Reply
Considering the costs of shutting down a refinery its cheaper to keep an existing reinery running.