April 11, 2006
Passing Gas
I'll be buying food this week, gas next week...
If there is one single economic indicator that affects the economic outlook of a vast majority of citizens - it's not unemployment, or the Dow - it's the price of gasoline. Outside of urbanized areas, which means most of the country, gas prices influence your outlook on everything from where you work to leisure activities. Feel like tooling over to the next town for the craft fair? That $5 admission comes with a $25 gas tab, so maybe not. Run to the local burger joint for lunch? Add $3 to the price of that Unhappy Meal...
Oil has been sitting at $60 for a while now (which we, ahem, predicted), and while gasoline dropped to a fairly acceptable $2.10 or so per gallon a few months ago, it has now climbed to a Storm-the-Bastille mob enraging level of nearly $3 in most places. That's a near 50% increase - except oil hasn't increased that much, in fact, only maybe 15% over that time. So why the hike?
Many reasons - oil, surely, but also the change from winter to summer fuels (yes, there is a difference...), and most secretively, the rapid move away from MTBE to ethanol as a gasoline oxygenate to reduce pollution. Not only are there costs incurred by the change, but as the process moves forward, gasoline companies are using the price to restrict demand during the move. Some states - those with the most expensive gasoline, you will note - already ditched MTBE in favor of ethanol.
Despite a personal wariness of oil-company bashing, MTBE is a crisis of their own making. MTBE has been their oxygenate of choice because... it is a petroleum byproduct, and both a) means they are a provider/profitter of the oxygenate and b) means that ethanol is minimized in the market and kept a marginal player unable to threaten the position of gasoline as the combustible fuel of choice. As long as MTBE is around, there was no reason to use ethanol, long anathema to the petroleum industry - Henry Ford himself saw alcohol, not gasoline, as the fuel of the future.
So when you figure out whether to take out a mortgage to fill your tank, just remember, it's not just the price of oil that is taking you to the cleaners... it's cleaner air as well...
Posted by MEC2 at April 11, 2006 11:13 PMGreat point. I find myself figuring the cost of driving to the grocery store, and deciding to eat leftovers.
On the positive side, the last time oil was this expensive (1973) we had 30 years of cheap oil due to increased energy production and increased efficiency. The same thing will happen, $65+ oil is not sustainable.
Posted by: tallpundit at April 12, 2006 09:50 AMOil could be free and there would still be plenty of incentive to make the price as high as possible with the greatest margins. The other incentive is to blame it on greens and liberals, as if the refiners and oil companies don't like their present profits.
Posted by: Terrell O. at April 19, 2006 10:17 AMThe words "plenty of incentive to make the price as high as possible with the greatest margins" is a textbook definition of capitalism. Every product in a free market will find it's price equilibrium between supply and demand.
Two things influence this in the gas debate - first, futures traders and speculations lead to volatility, and second, demand is not purely elastic, since people cannot simply stop using gasoline.
However, leaving it up to the market will in the long run always lead to the lowest price for consumers. That last thing needed are price controls or other artificial government meddling.
Posted by: MEC2 at May 5, 2006 08:37 AM