The graph above shows when the Saudi’s killed OPEC at the end of 1985, and the consequences of high oil priced combined with massive recession in 2008. But first, what or who controls the price of gasoline at your local pump?
Everyone likes to blame the president at the time, or Exxon. But in reality it’s not determined in the US. There is a world price of oil, determined by the world’s supply of and demand for oil. The average price of US regular is almost exactly the world price of oil plus $1.00/gallon. How is that?
A barrel of oil is 42 US gallons. So divide the world price, say it’s $84/barrel, by 42 to get the price of oil per gallon — $2 in this example. Then the price at the pump will be right about $3.00/gallon in 2012 dollars. Slightly more, in today’s dollars. You can see the proof of this here.
In 1980, the Saudi’s told OPEC they were setting the price too high, but they pushed it on up to $3.68 (see graph). That brought down the world price of oil by bringing in North-Sea and Alaskan oil. The Saudis were forced to cut their production to keep the price up as much as they could. But finally, with most of their capacity idle, they got really pissed off and stole the market from the rest of OPEC, tanking the price, but regaining their market share. That was at the end of 1985. America cheered, but Bush I (then V.P.) went to Saudi Arabia to try to talk them out of this — the price drop hurt big US oil just like it hurt the rest of OPEC.
Data is from DOE’s weekly survey.(1)
Recent weekly prices (year 2000 and after) for regular gasoline from U.S. Department of Energy: DOE
Gas prices 1973-1999 from Bureau of Labor Statistics (BLS )
Gas price before 1973 (annual) from DOE
Consumer price index from BLS - U.S. All items, 1982-84=100 - CUUR0000SA0
References [ + ]