Five Dollars a Gallon
Do we hear six? Seven? How high will gas prices at the pump go?
In California the price of a gallon of gas has reached the $5.00 mark and is still climbing.
Today I drove by the same gas station 4 times. Don’t ask. It was errand day.
I noticed the price of gas changed each time I drove by.
The digital display tracked in real time the price of oil and changed the prices accordingly. Accordingly, up.
If gas was a stock (or commodity) you owned, you would be thrilled to see prices climbing.
But filling up your tank? The pump has no mercy. Regardless of your income everyone pays the price at the pump.
Why is gas $5.00 a gallon?
When I got home, I checked the price of oil futures and sure enough crude oil hit a seven year high of $85.00 a barrel.
In March of 2020, the price of a barrel of oil hit a low of $21.04.
Remember March 2020?
The world came to a complete stop. COVID restrictions kept everyone home. Travel bans were implemented.
The demand for oil plummeted.
By April 2020 the price of gas dropped to $1.94 per gallon.
In September 2021 the national average cost of a gallon of regular was $3.18 a gallon.
By October of 2021 the average in California was $4.01 per gallon.
Today, gas is not $5.00 a gallon everywhere. It is $5.00 a gallon in California.
Why? ( I asked, again. Still not answering my own question)
One reason is that California pays more in taxes per gallon of gas than any other state.
The tax is about 77 cents per gallon.
And what are the higher taxes used for? Reducing greenhouse gas emissions.
Yea !! I mean it’s a good thing, right?
In addition, and this was news to me, California uses a special blend of gas that is “cleaner”. A special blend that is NOT readily available if it is not produced in California.
Okay, that is clearly a potential supply issue. But cleaner gas is still a good thing, right?
This is one way to get to $5.00 a gallon:
“The California Air Resources Board, or CARB also imposes a de facto carbon tax through its cap-and-trade program. Since 2013, refiners, oil producers and manufacturers have been required to reduce emissions or buy credits to offset them. The program adds about 14.3 cents a gallon”
Get Ready for $5 Gasoline if You Live in California—or if You Don’t – WSJ
The question economists are grappling with is:
What happens to the economy if oil prices continue to go up? Will the economic recovery stall? .
What is the price point at which individuals start to feel the pain at the pump and cut spending in other areas. Pumps outside of California in the real world that is.
The economy today is in a different place. We are not out of the COVID woods. I’m not sure how much traditional economic thinking is going to help when we are going through a pandemic.
Are fewer people driving or using transportation because more people are working from home?
It is going to take time to know for sure.
Many people I have spoken with do NOT want to return to an office full time or sit in commuter traffic for hours.
Is it possible that our need (demand) for gas declines?
That is going to be one tough puzzle for oil producers to figure out.
In February 2021 as part of the Annual Energy Outlook, the EIA stated the following:
“Returning to 2019 levels of US energy consumption takes years; energy related carbon dioxide emissions fall further before leveling off or rising
∙ Energy consumption fell faster than gross domestic product in 2020, and the pace at which both will return to 2019 levels remains uncertain.
∙ Petroleum remains the most-consumed fuel in the United States, as energy-related carbon dioxide emissions dip through 2035 before climbing in later years.
∙ The energy intensity of the U.S. economy continues to fall as end-use sector intensities decline at varying rates.”
Annual Energy Outlook 2021 Narrative (eia.gov)
Regional gasoline price differences – U.S. Energy Information Administration (EIA)
Why are gasoline prices in California more variable than prices in other states?
California gasoline prices are generally higher and more variable than prices in other states because relatively few supply sources offer California’s unique blend of gasoline outside of the state. California’s reformulated gasoline program is more stringent than the federal government’s program. In addition to the higher cost of this cleaner fuel, state taxes on gasoline in California are higher than they are in most states.
California refineries need to run at near full capacity to meet the state’s gasoline demand. If more than one of its refineries experiences operating problems at the same time, California’s gasoline prices can increase substantially. Even when supplies are available from other West Coast refineries, U.S. Gulf Coast refineries, or from foreign refineries, they can take a relatively long time to arrive in California.
Last updated: January 14, 2021
The American Petroleum Institute created a chart where you can look up every state and see the total in fuel taxes .
State-Motor-Fuel-Notes-Summary-july-2021.pdf (api.org)
The answer to my question: Only in California.
The answer to the economy? I’m not convinced that oil prices alone will slow down a recovery.
Although I have to say there do seem to be fewer cars on the road. And as someone who checks the AQI* daily, this year we have had many more “Good” days than this time last year.
That is an AQI under 50. Where the air is good for everyone.
*Air Quality Index
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