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Gasoline Prices - No Way to Go but Up

By John Karoly
Chicago, IL, USA

John Karoly
John Karoly

The price of gasoline is going to go up relentlessly, sometimes gradually, other times abruptly, with periodic corrections, but with an upward trend over the coming years. There is little doubt about that, irrespective of what happens in our political or economic life, whether we choose to be conservative or liberal. As a country relying on automobiles in our daily life, we must be keenly aware of this fact.

Gasoline prices affect our economy and our ability to spend money on essential goods and luxury items. An increase of the gas price is an unwanted tax on the people of this country and, for that matter, on all countries. Yet our governments throughout the last two decades have been curiously silent on the price trend. We have little inflation, according to the official statistics, because we exclude our two most important items, food and energy, from the computation. The excuse for these exclusions is that food and energy prices are subject to undue fluctuations that do not represent the “true inflation ” in the economy. These assumptions, however, are a convenient cover for a serious omission in keeping people informed as to what should be their expectations for the future. Past history informs the future, but does not guarantee a repeat.

Going back to the 1960s, we had plenty of gasoline while crude oil was trading under $20 a barrel. Gasoline was selling under $1 a gallon. There were plenty of gas stations, often four stations at intersections of streets and highways. There were gas price wars that made everyone happy, and there were plenty of refineries to supply the gasoline needed for this competition. With fewer cars than today, we consumed plenty since the cars were huge gas-guzzlers.

Then came the Mideast wars and crude prices shot up fourfold in the span of eight years. But by 1985, they were back again to twenty dollars. So, everybody concluded that gas prices could go up, but that they would come down - no problem, fear nothing. Then SUVs came into fashion, and yet, crude prices stayed down until about 9/11. Thereafter, crude and gasoline prices increased on a steep curve and never corrected back below $60 a barrel.

Other events have taken place during this period of time. Gas stations were shutting down throughout the country and refineries were idled. This process has not stopped. And, some large refineries are shutting down permanently. The causes are seemingly easily explained: the ill-advised corn-to-alcohol program to support the nation’s farmers who no longer need this support; the use of gas efficient vehicles; and, the recession that cut out driving by many. However, this does not explain the increase of gasoline prices simultaneously with the large scale shuttering of gas stations and refineries. High crude prices do, because other than oil producers and oil majors, few can make money on selling gasoline with hundred dollar crude prices. (And, the oil majors are not making a killing either.) Those gas stations remaining open survive by running a convenience store or a car wash or a car repair shop and using the gas pumps as a means to get the clients into the store. Now they are charging for air and vacuum, and if you are not adapt at pumping gas, better take someone with you as most stations don’t even have a single attendant to pump gas.

Large cities have lost probably 50-60 percent of their gas stations over the years. There are some gas stations, mostly of the oil majors, selling gasoline only, but often they are the most rundown establishments of their neighborhood. There has not been a refinery built in this country for decades. The existing refineries are in poor condition, requiring major maintenance shutdowns and putting more constrains on the gasoline market. There is hardly any other explanation for this behavior other than the producing and selling of gasoline is not really a moneymaker. If it were, we would see new refineries and gas stations galore.

Furthermore, in spite of the current recession, and contrary to past experience, the gasoline prices are increasing rather than decreasing. Should the economy improve, this increase will be accelerated. Should political risk increase, crude oil and gas prices will increase commensurately. All vectors point up for gas prices, virtually none points down. Naturally, should the world economy plunge into a deep recession, gas prices would drop along with the falling economic activity. We hope this will not occur.

Obviously, it is impossible to predict future gas prices. Or, for that matter, how far the process can go. But we know that with increasing prices comes decreasing consumption. The best way to reduce consumption is to raise prices - this is the unintended positive of gas price increase. It will force us to build yet more fuel-efficient vehicles, use public transportation, etc. But with increasing numbers of drivers, decreasing crude supplies and no hope for a sudden energy discovery, we will not be allowed to go back to our old ways. History will not repeat itself and crude oil prices will not drop, except in case of a deep worldwide recession.

Gasoline prices in many countries range between $6-to-$10 a gallon. These prices may be an indication where we are heading, and with our tendency to play political football with the energy industry, we are not likely to change this. Just see what is happening with the pipeline the Canadians want to build from Alberta to the Gulf Coast. The price of crude is discounted in the Province of Alberta to $62 because crude oil is piling up there with no place to pump it. At the same time, we have not seen crude much below $100 in months. Could we solve this problem and have the crude come to us? Evidently not. It looks like it will be piped from Alberta to the west coast of Canada…and sold to the Chinese.


All opinions expressed by John Karoly are solely his own and do not reflect the opinions of Stay Thirsty Media, Inc.

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