Got gas? Whatever the cost, it’s probably cheaper than you think

By Morf Morford
Tacoma Daily Index

For better or worse, virtually all of us drive personal automobiles – most of them being fossil-fueled combustion engines.

Even so-called “alternative forms of transportation” – like buses or ride-hailing services like Uber or Lyft are primarily fossil-fuel based.

In many ways, personal transportation has barely changed in nearly a century.

But the price of gas has.

Oddly enough, adjusted for inflation, except for a few situations of climactic or political upheaval, for the most part, even the price of gas has barely nudged.

I hear some old-timers reminisce about gas for about thirty cents a gallon back in the late 1950s. That was true – but back in 1958, for example, the cost of living – at every level – was also vastly less.

Housing back then may not have been seen as a “right” – but it was inherently affordable (at least if you weren’t very picky).

1958CostOfLivingWEB

Notice this chart – a “new” house cost under $12,000 while average income was a bit under $5,000.

That means that an average house (not new) would be about the equivalent of two years pay.

Round-trip airfare London to New York cost $453 in 1958.

It might seem crazy to us now, but the whole premise of our economy back then was to provide goods and services to the widest possible set of customers. In other words, companies vied to make their products affordable to almost anyone.

Success was measured in sales – especially market share – not quarterly profits.

Over those years, and for the average consumer, the relative cost of some items or experiences have not changed much.

Some are vastly cheaper – and certainly more sophisticated. When it comes to televisions, for example, the first RCA model (the big boxy thing with the 12 inch screen that broadcast in glorious black-and-white) debuted at $600 in 1939. Adjusted for inflation that would be well over $10,000 in 2019.

I mention this because a focus on the dollar cost of any object is inherently deceptive. Cost is always relative.

Here is a short history on the (adjusted for inflation)cost of televisions from the early 1950s to about now;

1953: $8,480

1968: $2,270

1977: $1,840

1986: $1,115

1996: $490

2011: $319

As you might guess, with a vast increase in features and options, prices in 2019 can vary widely, but you can see the trend.

Even in their decline, old vehicles exhibit a sense of character that modern cars will never reach. Photo: Morf Morford

Even in their decline, old vehicles exhibit a sense of character that modern cars will never reach. Photo: Morf Morford

At first glance, the price of gas (especially at the gas pump) might seem to be bouncing all over the place, but it too, in spite of appearances, at least compared to everything else has remained relatively steady – or even declined over the decades.

Average crude oil price per barrel (not adjusted for inflation) over a full year:

1960: $1.6

1965: $1.4

1970: $1.2

Be sure to note the price jump from 1970-1975 – thanks to the oil embargo. An increase by a factor of ten would be devastating to any economy – no matter how healthy.

1975: $10.4

1980: $35.5

1985: $27

1990: $22.2

1995: $16.8

2000: $27.6

2005: $50.6

2010: $77.3

2011: $107.4

2012: $109.4

2013: $105.8

2014: $96.2

2015: $49

2016: $40.6

2017: $52.5

2018: $69.5

Now: $64.5

The price can also vary seasonally and over the year.  (1*)

I also need to point out that the cost (per barrel) in 2019 is less than double the cost in 1980.

Is that true of anything else you can think of? Certainly not housing.

The defining feature of the price of gas is that it almost never has any relevance to standard economic rules like supply and demand or the cost of production.

The price of oil is based almost entirely on the cost of extraction, refining and transportation. The product itself barely factors into the final price at the pump.

For a variety of reasons, the price of oil, unlike most basics, is much more volatile and dependent on international trade barriers and relations.

And the opposite is also true – wild swings in the price of oil can lead to destabilizing – if not disastrous – impacts on global and local economies.

If the cost of gas goes too high, individuals and governments conserve or switch to electric. If it goes too low oil-dependent economies, large or small, can be wiped out.

Some have argued that the current economic chaos in Venezuela is tied to the near-collapse (or at least slowdown) of oil prices that has devastated their economy.

Venezuela has the world’s largest known oil reserves – certainly the largest in the Western Hemisphere – and was once one of the top global oil producers. They could increase production – but that would drive crude prices down even further.

Oil production facilities and pipelines take years, if not decades to put in place, so price stability, as impossible as it seems, is essential.

Oil has always been subsidized by our government (and almost every nation). This keeps prices relatively predictable.

In fact it is virtually impossible to build – or keep  supply lines running without subsidies.

Fracking, (which provides most of the natural gas we use) for example, is predicated on a price per barrel of $70. Anything below that would constitute a loss.

And a real (or projected) loss would impact future production – and the likely necessity of even more subsidies.

 

(1*)    Or even over the week. Gasbuddy says that the best day to buy gas is on Monday. The worst time is on weekends.
https://www.gasbuddy.com/NewsRoom/PressRelease/769