03/25/2005: "High Gasoline Prices—A Perennial Problem or a 2005 Anomaly?"
As March Madness draws toward a close and the best basketball teams for 2005 emerge, attention is being focused to a greater extent on America’s favorite pastime. I’m not referring to baseball, the game that traditionally is given that moniker. Instead, I’m talking about another love affair of the American public—the automobile and the road trip. Interest in baseball will undoubtedly increase during the summer months, but statistical data on games and players face the possibility of being eclipsed by reports related to high fuel costs. Let’s just hope we don’t end up needing A-Rod’s paycheck just to fill our tanks.
The US, European, and Japanese economies are healthy again, and China is exhibiting its economic prowess. As a result, world oil demand is increasing at the fastest pace in some 16 years. Mix with these facts various weather-related problems, the weakening of the US dollar, trader speculation, and continuing tensions in the Middle East, and you get rising gasoline prices.
Gasoline prices are normally slightly more every spring and summer when demand soars thanks to the greater number of motorists on the open road. These seasonal fluctuations in the cost of powering our cars and trucks have come to be expected and are passively tolerated, with hopes that the end of the summer driving season will lead to a drop in prices. In short, higher fuel prices this time of the year have seemingly become a way of life, just something to deal with as a part of our normal existence.
However, this year’s spike goes far beyond the usual. Average gasoline prices in the Lone Star State have seen a 35.8 cents per gallon hike over the last year. Nearly 83% of that increase, or 29.6 cents, has occurred during the past three months. The average price in Texas is now over $2.00. Even so, our lives are intricately related to personal mobility, much of which is associated with automobiles and motor fuel, and demand for gasoline over the past month was about two percent above the same period last year when costs were substantially lower.
News out of the Middle East indicates falling prices are growing less likely. For the first time in the 45-year history of OPEC, several of the cartel’s ministers are claiming that they have lost control of oil prices. Our nation uses about 20 million barrels of oil a day. Even if we completely drained the country’s strategic petroleum reserves and refused to import any oil, in less than two months we would have to begin relying on foreign sources again.
Domestically, it’s true that improved technology is allowing us to pump more oil from existing wells; rigs are also now dotting the landscapes in many new areas in Texas and elsewhere. Renewable energy is also on the rise. Drilling in Alaska, which recently received Senate approval, will undoubtedly enhance our self-reliance, but it has been estimated that it could take up to 10 years to reach maximum production from the Alaska National Wildlife Refuge (ANWR). During that decade, demand growth could easily offset the rising output.
Still, US refineries are being stretched to meet continually expanding demands. Increasing capacity within the industry will not solve the problem completely as refining is a complicated and long drawn-out process. The differences in crude properties and the flexibility of refineries affect the amount of gasoline, as well as the blend, that can be processed.
Demand for oil is squeezing the ability to supply the amounts required. Even when the summer driving season slows down, the need for motor fuels and heating oils is not expected to decline greatly.
The roller-coaster gasoline price ride we are on today is certainly not enjoyable, though most of us will simply endure because we are not willing to change our habits by joining carpools or using public transportation. Long-term high prices, however, will impact our behavior and, with it, our economic potential.