Gas Prices, Cont.
January 21st, 2006 | by Craig |This is mainly to continue where Chad and I left off.
A few posts ago, we were talking about the price of gas, and discussing my contention about how the price should rise and fall in accordance with summer and winter demand.
That is, you would expect to see prices go up starting around Memorial Day, then come back down after Labor Day, and the spike again around Thanksgiving, continuing on through the New Year.
Anyway, I went to the Department of Energy’s Retail Gasoline Price website, and downloaded an Excel file with historical data going back to 1993.
I looked at the data some and made some charts, and the funny thing is, I don’t see anything like the trend I would have expected, and it differs year by year. Each year has a totally different trendline.
The prices aren’t adjusted for inflation (and I’m too lazy to find a monthly CPI and convert the figures), but they do make for interesting reading (if you find this stuff interesting, that is).
Here is the Excel file, if you want to have a look at it yourself. I added a sheet with the line charts for each year — it’s the final sheet in the book.
I can’t draw any conclusions from the data, myself. They seem to refute my own hypothesis, but they really don’t confirm others; at least the way I see it.
It’s good discussion fodder, though.
(If you don’t have Excel on your machine, you can download a viewer here.)
4 Responses to “Gas Prices, Cont.”
By SallyT on Jan 21, 2006 | Reply
Thanks for charting this info! Interesting to consider, though I also don’t know quite what to make of it.
A few thoughts from my own research and observations…
I’ve noticed that analysis of gas prices often doesn’t take into consideration two things: 1) optional uses of crude oil, and 2) the lag in markets.
Most news accounts of gas prices don’t acknowledge all market forces, especially that gas is a product of a scarce resource which may be refined into other products (heating oil, deisel, tar, etc). Since refinement to market takes time, producers attempt to gauge future demand in order to provide the products when most needed. But predicting the future is always precarious.
Examples: A hard winter in the northeast (where heating oil is still common) can divert oil from gas production to heating oil/kerosene production to meet rising demand. Hurricane Katrina threatened refineries; immediate market reactions were due to fears of loss of 25% of gas supplies…most notably in states far from refining centers.
Most aren’t aware of the market lag. A sudden surge in demand for one oil product can’t be met tomorrow if production is currently dedicated to other products–and prices often have to rise enough to make it worthwhile to shift to a more expensive product, such as gasoline. The result is that it can take one to three months for production to catch up with unforseen demand. I’d venture to guess that the prices dips we saw at the end of December likely were the result of federal reserve releases finally making it to market.
Also, the grade of available crude oil affects costs in big ways. According to this analysis by Econbrowser.com:
The heavier and more sour the crude, the more difficult and expensive it is to turn into usable refined products. The price of oil you usually hear quoted (such as the recent highs of $67 a barrel) is the price of a light, sweet grade like West Texas Intermediate.
In Great Falls, we often hear grumbling about high gas prices even though we have a refinery here in town. What many don’t realize is that MFC only “processes a variety of sour crude oils,” so it actually would cost more to produce a gallon of fuel than it does to produce a gallon of asphalt. Which do you suppose is MFC’s specialty, at least until gas prices rise to the point where a profit could be made by switching to a higher level of refinement?
By SallyT on Jan 21, 2006 | Reply
Note: brain glitched at the end there…MFC should be MRC for Montana Refining Company. Sorry…
By DMerriman on Jan 21, 2006 | Reply
Other factors that may come into play are weather (higher/lower than normal temperatures), catastrophes, consumer demand (versus planned supply), and so on.
The thing I’d like to see is how gas station prices compare to crude prices - that is, whether or not gas prices rise faster and fall slower than crude prices as so many of us suspect :-/
By SallyT on Jan 22, 2006 | Reply
Well, take into account that markets reflect local behavior and conditions, as well as supply conditions. For example, a gas station owner who is notified that his usual shipment will be delayed (ie. due to a natural disaster) and warned that the next shipment may cost twice as much as the last, is likely to jack the price to 1) delay running out of fuel and 2) cover the cost of replacing sold fuel.
Incidentally, on Friday, crude oil spiked again, yet Great Falls stations’ prices haven’t budged–yet.
For all the details on prices, the Primer on Gasoline Prices is quite informative, especially addressing 2005’s fluctuations and regional differences.
For more research, the Energy Information Administration lives up to its name. The petroleum section (where Craig tapped the price stats) has background and analyses and graphs, oh, my!