The average retail
price for gasoline sold in the United States increased by 7.6 cents
per gallon last week. The price per gallon is more than 50 cents
higher than a year ago at this time, and the summer driving season,
with its increased demand, hasn't even officially started yet. As
of May 17, 2004, consumers were paying more than $2 dollars per
gallon for gasoline, on average. Prices are expected to remain at
this level for the foreseeable future. None of this means, however,
that gas is much more expensive than it has been in the past.
prices, the real price of gasoline has been trending downward. In
inflation-adjusted 2004-dollars, gasoline prices are 26 percent
lower than the 1981 high of $2.79 per gallon, the American
Petroleum Institute (API) recently reported. This means that the
real cost of gasoline to consumers has fallen by $0.73 per gallon
between then and now.
However, as Tom
Saler correctly notes in a recent article in the Milwaukee
Journal Sentinel titled "Weighing Impact of Sky-High Fuel
Prices," the "distinctions between real and nominal prices
[unadjusted for inflation] are of little comfort to Americans
chafing over another hit to their disposable incomes."
Crude oil prices
also hit a high on May 17, 2004. A recent commodities report that
appeared in the Wall Street Journal shows that on this date
crude futures finished at $41.55 on Nymex-the highest close since
Nymex began trading in the early 1980s. Yet, the article notes that
in inflation-adjusted terms, prices have been higher. After the
Iranian revolution in 1980, a barrel of crude oil averaged about
$87 in today's dollars.
API data shows
that from 1968 through October 2002, the refiner's crude oil
acquisition cost was the highest and most volatile component of the
gasoline price. For example, in 1981 crude oil accounted for 62
percent of the retail price as compared to about 44 percent of the
pump price in 2002. Crude oil remained the major cost component in
April 2004, at 45 percent of the retail price according to recent
figures released by the U.S. Energy Information Administration.
OPEC used its
market power in March 2004 to cut crude oil output by 1 million
barrels per day. This has kept supplies tight and driven up crude
oil prices. Given that the U.S. dependency on imports-more than 60
percent of the crude oil and petroleum products used daily are
imported-if the OPEC cartel continues to reduce output, consumers
will see prices continue to spiral upward. It remains to be
seen if OPEC will change its production quota when they meet again
on June 3.
Second to crude
oil prices, regulation and taxation comprise the next largest
components of the price consumers pay at the pump. EPA's
reformulated gasoline (RFG) rules, for example, account for many
summertime price spikes.
with other common consumer goods, gasoline is a bargain.
Information collected monthly by the Bureau of Labor Statistics and
reported in the Consumer Price Index show that, while the price of
gasoline has increased, the prices of other common products have
gone through the roof. For example, between 1982-84 and 2002
gasoline prices increased 19 percent. But the price of bananas
increased 64.5 percent; apples 131.5 percent; and college tuition
and fees 276.9 percent.
comparison is the consumer cost of gasoline per mile traveled. API
notes that declines in real retail prices of gasoline coupled with
improvements in vehicle fuel efficiencies reduced consumer fuel
cost per mile driven during the 1980s and 1990s. For example, API
reports that by 1998 the average real cost per mile traveled was
the lowest measured since 1973.
between 1980 and 1998 the fuel cost per mile traveled for passenger
cars (in 2002 cents per mile), fell from 16.7 to 4.6 cents, while
the costs per mile for vans, sports utility vehicles and pickup
trucks fell from 21.9 to 7.2 cents. Preliminary data for October
2002 show these costs were up to 6.7 cents for passenger cars and
8.5 cents for vans, SUVs and pickup trucks-nearly the same as in
1997, but less than half as much as in 1980.
As consumers fill
up their vehicles with gasoline, they may want to think twice
before they yearn to return to 1981, when the price of gasoline
averaged $1.38 cents per gallon. Adjusted for inflation this
represents $2.84 per gallon-significantly more than today's already
Still, if Congress
is serious about reducing high gasoline prices, it should reduce
the regulatory burdens, such as EPA's RFG rules, that make
production and distribution unnecessarily expensive.
is Senior Policy Analyst in the Thomas A. Roe Institute for
Economic Policy Studies at The Heritage Foundation.