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Energy

Gasoline Price Check on Island No. 4

As we are two weeks away from the national presidential election, I was asked by a friend two weeks ago if the president, elected representatives to Congress, or the majority party manipulated gasoline prices to make them fall just before a national election? In addition to that, there are those who argue that gasoline prices are continuing to rise. Some political pundits tell you that gas prices are the highest that they have ever been. True or false? The answer is false.

This post takes a quick look at average gas prices for the week of 10.22.2012. Also included in this discussion is a quick look at the highs and lows of gas prices over the last 20 years.

According to GasBuddy.com [Ref 1], average prices for a gallon of regular unleaded gasoline in metro-Phoenix, the State of Arizona, and the U.S. for October 22, 2012 are:

  • Phoenix         $3.695
  • AZ State         $3.667
  • U.S.                $3.662

This represents a decline of a few cents over the past week and month. Also, the national average yesterday took its biggest weekly decline in over a year. The decrease of 10.1 ¢/gal was the largest week-on-week decline since late May 2011, when prices fell 10.4 ¢/gal in one week, as reported by GasBuddy.com. Last week’s drop was also one of the largest since the 2008 recession saw prices drop week after week nearly 30 ¢/gal. [Ref 2]

A number of folks have argued that the government should intervene when gas prices rise to unacceptable levels. What is an unacceptable level or price for a gallon of gasoline? Once gas prices cross the $3/gallon mark, and head upward towards $4/gallon, personal driving habits and spending begin to change. If it doesn’t in your house, it certainly does in mine.

Run-up in Gasoline Prices

What triggered the question about lower gas prices during an election year started with a discussion about the highest gas prices that were seen in Arizona for a pro-longed period of time during summer 2008 prior to the November 2008 presidential election. I don’t need to go to the data charts to remember that I paid $4.63 for 91-octane gasoline that year, and when prices dropped below $4.00/gallon, I started to think that I was getting a bargain.

I also mention pro-longed period of time because back during the summer of 2003, a gas pipeline broke between Tucson and Phoenix. There was no shortage of gasoline, however, the disruption in flow and the subsequent delivery issues resulted in temporary shortages in the area for a few weeks. Some retailers raised the gasoline prices to $5.00/gallon and were subsequently cited for price gouging by a state agency.

Drawing on data from the Energy Information Administration (EIA), a chart of weekly retail gas prices for all grades and formulations is provided in Figure 1 [Ref 3]. Price data are reflected from April 5, 1993 through October 22, 2012.

Figure 1: Average Gas Prices for all Blends (04.05.1993 to 10.22.2012)

A review of Figure 1 shows that the highest price for all blends averaged $4.16 the week of July 14, 2008. Gasoline prices began their downward trend for the next five months and hit a low of $1.67 the week of December 29, 2008.  They have been rising steadily since then.

What caused the run-up in gas prices in 2008? According to CNN Money, the run-up in gas prices was blamed on overzealous speculators. “The strong demand, tight supplies and a volatile marketplace have attracted the interest of investors – the last main contributor to high prices…..The speculator has seized upon this opportunity. They have recognized there is something fundamentally flawed in this market.” [Ref 4]

Also, more demand for oil by all countries, especially the growing nations of China and India during the first decade of the 21st century, caused oil supplies to tighten. This helped push crude oil prices to nearly $130 a barrel and gasoline to an average of nearly $3.80 a gallon in May 2008 – smashing previous records even when adjusting for inflation. Crude oil hit a record high of $147 per barrel on July 7, 2008, and the average for regular gasoline hit $4.165 the same day. [Ref  3, 5] Once again, as the prices continued to rise, and the cost was more than many consumers could bear, spending and driving habits changed to reflect cost conscious consumers.

Now this was the same year as the 2008 national election. However, look at Figure 1 and think back to the 2000 national election. Also consider that there are congressional elections every two years. From 2000 to 2002, gasoline prices were relatively flat without too much fluctuation, and started to creep upward from there. From January 2004 to May 2008, gasoline prices went from $2 to almost $4 per gallon.

Drop-off in Gas Prices the Second-Half of 2008

Following the run-up in gas prices during the first half of 2008 to over $4 a gallon, was followed by a steady decline starting in August 2008. I struggled for a while to recall what was happening during this time to drive the prices downward – something that no one complained about.

One explanation that some of us had already become painfully aware of was the fall-out that was occurring in the stock markets in the U.S. and worldwide. It had actually started in the spring, and became more painfully obvious as we went into the summer and then the fall. By September 2008, the financial melt-down was upon us, and some banks and brokerages houses were failing or had failed, not just in the U.S. but worldwide.  While often overlooked in this discussion, one of the victims of the global financial meltdown was a collapse in worldwide oil prices. The worldwide drop in demand for gasoline contributed to the falling prices.

In summary, the highest average gas prices in the U.S. were seen during Summer 2008 followed by a five-month drop in the price of crude oil as the global financial melt-down took shape.

A future post will tackle the question of whether gas prices actually do fall in an election year, of if it just seems that they do.

References:

  1. Gas Prices, http://gasbuddy.com/GB_Price_List.aspx
  2. National average takes biggest weekly drop in over a yearPatrick DeHaan, October 22, 2012, http://blog.gasbuddy.com/#R3umtIjUTsUZjDqC.99
  3. U.S. Energy Information Administration, Petroleum and Other Information, http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=emm_epm0_pte_nus_dpg&f=w
  4. CNNMoney.com: Who’s to blame for $4 gas: Prices have surged over the past four years – and there’s a bunch of reasons why, Steve Hargreaves, staff writer 22, 2008: 2:35 PM EDT
  5. Treehugger.com: 2008 U.S. Gas Prices Year in Review, Michael Graham Richard, Transportation/Cars, January 12, 2009 http://www.treehugger.com/cars/2008-us-gas-price-year-in-review.html
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About Vi Brown

Vi is principal and CEO of Prophecy Consulting Group, LLC, an Arizona firm that provides business and engineering services to private and public clients. Prior to establishing her consulting practice in 2001, Vi worked with Motorola, Maricopa County Government, Pacific Gas & Electric, CH2M Hill, and Procter & Gamble. As an adjunct faculty member, Vi teaches undergraduate calculus classes and graduate level environmental courses. She is also a professional speaker.

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