When you see a comparison of gasoline prices across time, if the writer has not adjusted for inflation, whatever you’re reading may be nominally true, but it is relatively false.
The last time gasoline prices soared was July 2008, which “came at the tail end of a decade-long energy crisis,” according to Fortune. AAA reported that gasoline was $4.144 per gallon (nominal, unadjusted for inflation).
The average US price for a gallon of regular was $4.101 on 10 March 2022, according to the Energy Information Administration (EIA).
In nominal prices, gas cost about the same in March 2022 and in July 2008. But in real (inflation-adjusted) dollars, the July 2008 gasoline price would have been $5.37 in current dollars, making it the (considerably) more expensive trip to the pump.
In March 2022, Fortune reported gasoline could cost as much as $5.84 per gallon should crude oil exceed $200 per barrel. On 07 March, a barrel of crude oil was $105.93.
For a gallon to increase about 30% (from $4.32 to $5.84), analysts said crude would need to almost double in price.
What is the nominal price of gasoline today? According to the US Energy Information Administration, the US average price for regular gasoline was $4.876 on 06 June. Up 19%.
And the nominal price of crude? $118.41, up 12%.
The price of crude oil accounted for about 60% of the retail price of gasoline in March 2022, according to Dallas Federal Reserve Bank.
Which increased at the faster rate since 2008, gasoline (red line, left axis) or crude (green line, right axis)?
The difference is even more stark when plotting west coast gasoline prices.
These charts convey an image of an economist saying: retail prices are “sticky” downward. In other words, corporations are quick to increase prices in response to unanticipated cost increases. And they are slow to reduce those prices when costs flatten or drop.
Even before the Ukraine-Russian oil shock, gasoline prices at the pump were rising. From November 2021:
The root cause of today’s high gas prices isn’t politics: It’s financial pressure on oil companies from a decade of cash-flow losses that have made them change financial tactics. Investment in new wells has dropped more than 60%, causing U.S. crude oil production to plummet by more than 3 million barrels a day, or nearly 25%, just as the Covid virus hit, and then fail to recover with the economy. For an oil-drilling sector that lost 90% of its stock value from 2012 through early last year, it hasn’t been the toughest call in the world.
A Dec. 6 report by progressive advocacy group Accountable.US says 16 of 24 large U.S. energy companies have raised their dividends this year (through third-quarter earnings reports), while 11 made special dividend payouts totaling more than $36.5 billion of what the group says were $174 billion in industrywide profits.
… Exxon Mobil and Chevron alone pledged to buy back as much as $20 billion of stock in the next two years when they disclosed third-quarter earnings. Chevron’s annual dividend is now 4.7% of the company’s value, more than triple the average of 1.3% paid by members of the Standard & Poor’s 500 Index.
Those pressures from theWall Street investor class have not disappeared.