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Monday, May 21, 2007

Gas Prices Hit All Time High - Worse than Oil Shock of 1981

Gas prices in the United States are now higher than any point in history, even when adjusted for inflation.


Gasoline prices soared to levels never seen before as even the inflation-adjusted price for a gallon of unleaded topped the 1981 record spike in price that had stood for 26 years.

And higher prices could be on the way as Americans get ready to hit the road for the Memorial Day holiday and the start of the summer driving season.

The Lundberg Survey, a bi-weekly gas price tracking service, put the price of a gallon of unleaded at $3.18 in its latest reading released late Sunday, up more than 11 cents from its reading of two weeks ago.

While gasoline had already been in record territory in current dollars, Trilby Lundberg, publisher of the survey, said this is the first time that her survey topped her 1981 record high when adjusted for inflation. The price of $1.35 in 1981 works out to $3.15 in current dollars, she said. The Iran-Iraq war, which started the year before, choked off oil supplies to the global market, causing that spike in prices.

The motorist group AAA does a daily survey of up to 85,000 gas stations, but that reading does not go back to the 1981 spike. It's survey has been showing a series of record high prices in current dollars since May 13, and Monday the average price for a gallon of self-serve unleaded hit $3.196, the ninth straight record high and up from Sunday's record of $3.178.

The AAA survey now shows prices up 4 percent over the course of the last week, along with an increase of 11.8 percent over the last month.

AAA warned in congressional testimony last week it believes that more record prices could be on the way. It is forecasting prices will approach $3.25 a gallon over the next 60 days.

Still AAA is predicting a record number of Americans will be hitting the road holiday weekend, with 38.3 million expected to be traveling 100 miles or more over the Memorial Day holiday, up 1.7 percent from a year ago. And most of those - 32.1 million - will be driving on their trip, according to the motorist group.

Topping post-Katrina records

Before this recent run of record-high gas prices, the highest price ever recorded in current dollars was $3.057 in the AAA survey, which was set Sept. 4 and Sept. 5, 2005, in the wake of Hurricane Katrina. That storm disrupted refinery operations and pipelines and caused a temporary spike, sending prices above the $3 mark for eight days.

The only other time that the AAA national average has topped the $3 mark was in August 2006, after Israel invaded Lebanon and oil futures shot higher. Gas prices then reached as high as $3.036 during that 19-day spike.

The current price increases are due to problems in gasoline supplies and refinery output. The average gas price went above $3 a gallon on May 4, and has been climbing since. Unless prices fall suddenly, Wednesday will mark the longest stretch of $3 gas on the AAA survey's history.

Few states have an average gas price below $3. California had the highest average price, with a gallon of self-serve unleaded costing $3.457, up slightly from the $3.453 reading Sunday after several days of prices slipping slightly there.

New Jersey retained the lead in the race to have the cheapest average gas price, but it is quickly approaching the $3 a gallon threshold itself. The average price there came in at $2.938 a gallon in the Monday reading, up from $2.93 Sunday.

New Jersey is one of only three states with an average price below the $3 mark. The other two - South Carolina and New Hampshire - are both within a penny or less of that mark, after both rose in the latest reading.

Four more states - Alabama, Mississippi, Tennessee and Virginia - became the latest states to cross that $3 a gallon benchmark in the Sunday survey.

While crude oil prices have fallen over the last few weeks and oil supplies are high in the United States, problems at several refineries have crimped gasoline output ahead of the summer driving season.

The refinery problems include fires, power outages, and longer-than-usual maintenance periods.

The run-up in prices is a big concern for store chains, according to the retailers' trade group. Its survey released early Friday found the average consumer believes that the price of gas will reach $3.32 per gallon by Father's Day.

As a result, 40.2 percent of consumers are taking fewer shopping trips, while 37.9 percent told the survey they plan to shop closer to home. In addition, 30.7 percent said they are shopping for sales more often and 23.5 percent are using more coupons.

Perhaps of greatest concern to the retailers, 24.1 percent said they are spending less on clothing, while only one in five have delayed major purchases, such as a car, television or furniture, and 31.1 percent are dining out less.

"Consumers are entering the summer season with a cautious view of increasing gas prices," NRF President and CEO Tracy Mullin said. "To offset the effects of higher prices, more consumers are giving their wallets a little extra cushion by cutting back on discretionary spending or choosing to frequent retailers closer to home."

Interestingly enough, the retailers' survey also found that 32.6 percent have decreased their vacation travel plans this year, despite the AAA survey that projected a record number of Americans on the highways this weekend.

Major retailers were reporting weak April sales even before the recent spike in gasoline prices started earlier this month. Wal-Mart Stores, the world's largest retailer, had its worst sales comparison on record in April as it forecast essentially flat sales at stores open at least a year in May, a closely watched measure of retail strength known as same-store sales.

Overall same-store sales in April were among the weakest on record as other major retailers including Target, Gap, Federated Department Stores and J.C. Penney all reported declines in that key sales measure.

Big Oil went on the defensive Wednesday, getting grilled before a House panel and denying accusations that mismanagement and a lack of competition are the reasons behind this spring's record gasoline prices.

Here comes $4.00 gas!


Jesse Jenkins said...

Gas prices in Europe are near record levels as well.

Mike Smith said...

Normally I'd argue that the inflation numbers may be lower than they actually should be (since they're probably using the reported core inflation rather than headline inflation, which includes oil and a lot of products affected by the price of oil). However in this case, core inflation is probably the appropriate measure to use, and a reflection of how much the price of oil has risen in relation to everything else included in the CPI.

For future reference though, it's worth noting that for the last 8 years "inflation" has generally meant core inflation, not headline inflation (which is higher due to the price of oil). A few references on this subject are: