Monday, May 26, 2008

Gas prices in Madison rise above $4.00 per gallon over the Memorial Day weekend

Gas Prices in Madison Top $4.00 Per Gallon For the First Time
It would take more than the pretty landscaping at this University Avenue Shell station to disguise the impact of rising gas prices, which -- although incredibly cheap by European standards -- have now reached a new high by modern American standards.

In constant, inflation adjusted dollars (green line), U.S. gas prices have trended downward for a long time, with occasional blips such as the 1981 peak, when prices reached $2.96 per gallon in 2006 dollars (click on chart to enlarge).

Looking at a year-by-year chart of gas prices in current dollars vs. constant dollars since 1920 is a real eye-opener. It shows that, in real terms, gas prices in the U.S. were at an all-time low in the latter years of the Clinton administration. You can argue whether that's a good thing or a bad thing. It certainly had a lot to do with the SUV and light truck boom of recent years. But one thing is undeniable -- gas prices in real dollars started climbing under the Bush administration and haven't stopped. Peak oil? Asian demand? Speculation and price manpulation? Policy decisions made by an administration filled with oil men at the highest levels? Take your pick, and feel free to pick more than one.

If most observers are right, this is just the very beginning. The days of cheap energy seem to be over, which means that American lifestyles will be very different in the future from what they are today.

2 comments:

Dr Bud "Sweet light crude" Diablo said...

It's true that "most observers" believe that $130 oil is only the beginning. That's what they were saying when uranium spiked over $120. The spot price dropped another $3 last week to $60; stock prices of many U308 companies have fallen in half. That's what they were saying years ago when gold neared $900 before sliding all the way to $200 and getting dissed as a barbaric relic of preindustrial finance. As a Wall Street sage once said, "There are always lots of reasons to be bullish at the top."

It isn't simply speculators but other investors using oil as a store of value as the dollar declines. However, look for them to unwind their positions when oil dips, leading to a further decline. At a BBQ today, I bet someone that oil will drop below $70 long before it hits $200. Everyone present thought my position was deranged. There's a contrary indicator for you.

Remember that you heard this at Letter From Here, not from Warren Buffet or Jim Cramer. Short oil and oil stocks. Take out a second mortgage and bet the farm.

Anonymous said...

Now would be a good time for US to convert to metric. Buying gas by the liter will help perceptions, including making it seem like the gas prices are 1/2 what they are now. It would also make it easier for the globally challenged, less understanding public to see how reasonable our pump prices are as compared to the rest of the world's gasoline pump prices.

[File this comment under failure of modern press to tell the whole story despite our never-ending, 24/7 news coverage.]