Current Gas Prices and Price History

-Gasoline-Price
The graph reflects DOE's weekly survey ([#Sources]). The changing gas-price widget at the right reflects daily data, mostly from private surveys. Enter US as the "State" to see the current US average price.

What Drives Gasoline Prices?

Gasoline prices follow the price of oil. They lag behind a bit when the price of oil rises and they lag behind a bit more when it falls. But as you can see above, they can still fall very fast, as they did in the last half of 2008.

So what drives oil prices? The key is to realize that the oil market is a world market. This has some amazing consequences:

  • Drill baby drill and the Chinese will thank you.
  • Making ethanol replaces 30% less gasoline than environmentalists think. 
  • Exxon loves OPEC more than you can imagine.
  • Form an OPIC with China to cut gas prices and you'll help the climate. 

The explanations of these four mysteries is on the Oil Prices page, because this page is about ...

How to Save on Gas

Plenty of sites will tell you how to find a cheap gas station, but lets think big. One big-picture approach is the OPIC described on the oil-price page. But a more direct and complementary approach is to make CAFE standards tougher—or maybe not. New research brings good news and bad news. First, better mileage is far cheaper than we knew. Second, that means CAFE standards have been doing squat.

Better mileage is tantalyzing, not just because the price of gas is going crazy again, but think of the big picture. America has a choice. We can spend our money on better cars which are mainly made in America (even Toyotas). Or we can continue spending a few hunderd billion a year on foreign oil, which pollutes our cities and warms the globe. On top of that, the best way to reduce the price of oil is to [#buy less] oil/gasoline for our cars.

But Fuel Efficiency (CAFE) standards have flopped. They were not raised for 30 years and they left open a huge loophole—sell trucks instead of cars. And sell huge cars (SUVs) that qualify as trucks. The result has been a massive switch to low-mpg "trucks" over the last 30 years, because their CAFE standards are weak. Unfurtunately, to qualify as trucks, SUVs need a high front-end approach angle, which means they kill more people when they crash into mere cars ([#blame it on CAFE]). Sure, they now tell us the standards will get tougher. We've been through this before.

But There's Hope

In the June issue of AER (a top econ journal) there's a new estimate of how much it costs to build higher mileage cars. This is an age-old mystery because the car makers say it costs a lot, and environmentalists say it costs very little, and both are prone to exageration. But this article took a new and very [#clever approach.u] based on a CAFE loophole. The result was terrific. It costs somewhere between $9 and $18 to get one more mile per gallon. And the car companies are not doing that because the loophole is cheaper.

Let's do the math. Say a car gets 25 mpg and goes 125,000 miles. It would use 5,000 gallons. But at 26 mpg, it will use 4% less—that's 200 gallons less. That's about $700. So GM and Toyota could save us $700 on gas by selling us a car that costs, maybe, $15 more. And they are not making those improvements.

Don't Drink the CAFE

The trouble with CAFE standards is that the car companies have all the advantages when they go before the NHTSA. They have all the data on costs and market "problems," and they have the lawyers. I've read the arguments and they are hundreds of pages of technical stuff the NHTSA cannot check. Plus the car companies are experts at cooking up new loopholes.

The trouble is that CAFE is beaurcratic command and control. Environmentalists love that feeling of control, but it's just a feeling. You know this is true when we see that all this "control" has not even got them to spend and extra $9 to $18 a bucks a car.

There's a Better Way

It goes by the ugly moniker of "feebate." It's not a tax, since the government collects no money. But high mileage cars pay a fee and low-mileage cars get a rebate. Given how cheap it is to give us better mileage, a very low feebate of say $50 per mile/gallon would have beat the sox off 30 years of CAFE.

What can the car companies say — Oh we can't meet that standard for years? That standard will cost way to much? This standard would cause technical problems? All of their excuses are out the window and there is no use for their technical expertise — because there is no standard with a feebate!!

They can build whatever they want. The only pressure, and it's extreme, come from competition. If the other car company makes 30 mpg cars and they make 20 mpg cars they force to, in effect, pay the other car company $250 per car on average. What could they hate more than paying their competitor?!

So car companies don't have to do a thing, but they will. They will do far more than they ever have.

And it's easy to argue for a strong feebate. Better mileage saves a lot of money, so companies that save us that much should be rewarded handsomely.

 

 

PopNotes Used Above

[=Sources] Recent weekly prices (year 2000 and after) for regular gasoline from U.S. Department of Energy (DOE xlnk.gif)
Gas prices 1973-1999 from Bureau of Labor Statistics (BLS xlnk.gif)
Gas price before 1973 (annual) from DOE xlnk.gif
Consumer price index from BLS xlnk.gif - U.S. All items, 1982-84=100 - CUUR0000SA0

[=clever approach] The loophole that the article used...

.. is making flex-fule vehicles—cars that can use ethanol (E85). And their method works like this. This cost only $100 to $200 and they get credit for about 2/3 better mileage than the car actually has. That's a big mileage increase for very cheap. Obviosly, if actually raising mileage costs more they would use this loophole instead.

And they do use it some, but they don't use the whole thing. So apparently they are making better mileage cars up to the cost of the loophole ($9 to $18 per 1 mpg improvment), but they don't spend any more, because the loophole is cheaper.  

"Using Loopholes to Reveal the Marginal Cost of Regulation: The Case of Fuel-Economy Standards," By Soren T. Anderson and James M. Sallee, American Economic Review 101 (June 2011): 1375–1409.

[=buy less] Supply and Demand

Less demand, reduces the price in any market, even the world oil market.

[=blame it on CAFE] Yes, I know.

CAFE did not force Detroit to make deadly SUVs. But when you use command and control, that opens the door for particularly stupid loopholes. Environmentalists should dial-back on command-and-control; it's bad policy and often backfires. In fact a favorite environmental gurus (Amory Lovins) has advocated feebates (and opposed command and control) from the beginning.