Friday, July 19, 2013

AAA and ABC News declare end of gas below $3.00

There was an important announcement by ABC News and AAA that didn't show up in either the title or description of Gas Prices Spike, Up 15 Cents in 1 Week.  The days of $3.00 gas are likely over.  Here's the report.

Climbing gas prices may put a dent in everyone's summer fun.
Yes, ABC news buried the lede on this one.  The important story isn't the price spike, which is ending, as I'll describe later, but the recognition of several realities about oil.  First, as I mentioned, the AAA announced in a Congressional hearing that the retail price of gas is not likely to ever go below $3.00.  Second, this is going on despite the domestic production of oil more than doubling.  ABC News blames this on transportation costs.  I'm not discounting these at all, but the reporter neglected the high cost of production.  Fracking and mining tar sands are not cheap and neither is the oil produced by these methods.  Third, the amount of oil on hand is much less than people think.  Finally, Americans have been getting a bargain for a very long time on gasoline, something I point out to my students every semester.  None of these are popular truths, but they are truths just the same.  Personally, I'm surprised that ABC News had the nerve to say them.   They still didn't have the nerve to make any of them the report's title or include them in the description.

As I wrote above, the price spike is ending.  Since the previous report, local prices at the pump have gone down, although not by the most direct path.  Last Friday, all the nearby stations lowered their prices to $3.77.  On Monday, the same stations raised them to $3.79.  The corner station wasn't content there.  On Tuesday, its price shot up another 20 cents to $3.99.  That ended up being another charge into No Man's Land, as the three outlets down the street held their prices steady.  By the end of the day Wednesday, the corner station retreated back to $3.79.  Today, all of the stations dropped their prices back to $3.69, exactly where they were when I wrote Crude prices reflected at pump after slight delay.  Looks like the fear premium is going away.

According to the price of Brent crude and calculator at Econobrowser, the closing price of $108.52 for Brent should translate into $3.55, which is not only below the $3.69 locally and the $3.77 average for Detroit, but also below the $3.68 national average.  I still expect prices to fall to the $3.59 level by the end of the month.  That's only 11 days away.


  1. Yes quite a twisted sister of a report. But not totally twisted; the end was good.

    A tanker of oil keeps everyone on the road for a whole hour and a half.


    I wish that had gotten more play.

    The idea that there should be blame for high gas prices by implying that a doubling of domestic production should have lowered lower prices at the pump is erroneous.

    "Five years ago, we were importing 10 million barrels a day, but at $50 a barrel. Now we're at 8.4 million barrels, but at prices over $100 a barrel." - Energy expert Robert Rapier

    A doubling of domestic supply might have lowered prices but the increase in domestic production is offset by a decrease in imports. A shell game in the oil supply with 'outrageous prices' thrown in to make it newsworthy (otherwise people wouldn't watch). But is it really news or part of a campaign to get the public comfortably resolved to paying high prices?

    I only suggest the question be pondered. Not that a shifting sources in the oil supply isn't really news; to some it certainly is. But what was the real purpose of that news clip?

    I'm asking myself that question a lot these days. It's habit forming.

    1. Gas prices have finally decreased, but that was as much due to decreased demand in Europe and Asia and Saudi Arabia deciding to get out of the way of a falling knife as it was about increased U.S. production. It reminds me of 1998, when prices fell because of similar circumstances, namely a recession in Asia while the U.S. was undergoing expansion. The low prices will probably last about as long, too. Enjoy it while it lasts.