Thursday, April 19, 2012

Gasoline Price Hysteria

Gasoline is a unique commodity. It is something most of us need to buy periodically. Its price is posted prominently wherever we drive. Our awareness and outrage about its price is disproportionate to the real impact it has on our budget.

Its price and price movements rarely make sense. Why is gas (after subtracting state gas tax) 27 cents cheaper in Kansas than it is 5 miles from an oil refinery in California (

Political finger pointing is always a byproduct of a price spike, but when its price declines there is rarely fanfare. Do you remember when gas dropped below two dollars a gallon in late 2008?

How much impact does a gas spike of $1 a gallon cost you a month? Here's the calculation:

1) How many miles do you drive a month?

2) How many miles does your car get per gallon?

3) Divide 1) by 2) and multiply by $1. Example: 1,000/miles per month/25 mpg = $40/month or $480/year.

Gas is a commodity we pay for separately and regularly. It's a shared consumer experience. If milk goes up, it's just part of a larger grocery bill.

When I started driving in 1964, a gallon of gas cost 29.9 cents, that equates to $2.25 in current dollars. Today I paid $4.16 per gallon. That's an 85% inflation-adjusted increase over 48 years. My health insurance has doubled in just the last three years!! Now that's something to get hysterical about, and I'm not expecting my health care premiums to go down anytime soon.
Several years ago a client told me that she planned to cancel a much anticipated vacation because gas prices had gone up 20% in a short time. I ran the numbers for a worst case scenario and calculated that it would cost the family an extra $150. They took their trip and had a great time.

The next time you get upset about gas prices, remember that a gallon of gasoline is still cheaper than a gallon of water bought in little plastic bottles ($6.40/gallon) or scorpion venom ($40 million/gallon). Source: 47 Liquids chart linked below.

Below are links to a variety of articles and charts about gasoline prices. I hope you find them thought provoking or at least amusing.

Interesting Articles on Gasoline Prices:

Why Gas Prices Are Out of Any President’s Control - New York Times, By Richard H. Thaler (March 31, 2012)

Free global gas prices - by Lawrence Solomon (Mar 23, 2012)

FACT CHECK: More US drilling didn't drop gas price --Associated Press (March 21, 2012)

Where Might Gas Prices Head Over The Next 5-10 Years? - (12/30/2010)

Chart -Average Annual Gas Prices (Adjusted for Inflation) (2/27/12)

Chart - The White House and Gasoline Prices - The New York Times (April 1, 2012)

Chart - Comparing the price per gallon of 47 liquids (2006)