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Saving Gas – Part 1 of 3

A little departure from the typical columns on this site.  Rather than simply discussing an aspect of global warming, I am going to discuss a related topic – gas prices.  There are quite a few articles out there on the discussion but I think I have a different perspective for everyone to consider.

First, how bad is it?  Yes, I know that at the time of this writing, gas is over $4 a gallon (just filled up last night) but perhaps we need a reality check.  The good folks over at InflationData.com compiled a table of average crude prices which they also inflation adjusted for 2007.  I have combined that with a chart from WiseGeek that details the price of gold.  Since the WiseGeek site stopped at 2000, I put in the price of gold at the end of 2007 from Goldprice.  I also added today’s approximate pricing for gold (Kitco) and oil (MSNBC).

 

Year  value of one ounce of gold Nominal  Inflation Adjusted 2007 Oil price in carats
Today $880 $135   0.153409
2007 $840 $64.20 $64.92 0.076465
2000 $272 $27.39 $33.39 0.100699
1995 $386 $16.75 $23.09 0.043394
1990 $424 $23.19 $37.17 0.054693
1985 $354 $26.92 $52.56 0.076045
1980 $641 $37.42 $95.50 0.058378
1975 $151 $12.21 $47.63 0.080861
1970 $38 $3.39 $18.35 0.089211
1965 $36 $3.01 $20.05 0.083611
1960 $37 $2.91 $20.69 0.078649
1955 $35 $2.93 $22.94 0.083714
1950 $40 $2.77 $24.18 0.06925

 

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Based on this simple analysis, the price of oil has been pretty stagnant for the last half of the 20th century. We seem to have just gone through a short term low in the early to mid 90s.  Even as recently as 6 months ago, the price of crude was very similar to the prices from 1960 to 1985 when it actually dropped.

I am well aware that gold is not the standard of currency in today’s modern world.  That actually makes the problem worse.  Most of the oil producing nations tie their currency to the US dollar, so when our dollar drops so does the riyal and this causes their economies to import inflation from other countries.

The advantage of using gold in the “price” though is that it averages against all currencies and all nations. This tells us what is really happening with the price of a commodity compared to another commodity.

All that being said, the real pain for the price of oil is that it (and gold) have spiked so dramatically.  The price of crude has increased approximately 500% in the last 8 years.  This dramatic change could be called a correction for the very low prices of years gone by, but all corrections in pricing tend to be very challenging for the budgets of companies and individuals.

In the next few articles, I will discuss ways to reduce the amount of gas that you spend today.  I am not going to suggest that you run out today to buy a hybrid vehicle as most people cannot adapt that quickly to this rapidly changing marketplace.  Rather, we can discuss ways to help.

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3 Responses to “Saving Gas – Part 1 of 3”

  1. […] is the second of our series on dealing with the high price of gas.  Yesterday, we discussed what the true price of gas was but that still acknowledged that the rapid increase has left people and companies feeling the pinch […]

  2. While this particular oil spike is harsh, oil historically has advanced this way–a dramatic spike followed by a long slow drop as the historical, inflation-adjusted price cathes up with and surpasses it until it hits another spike, followed by a long slow drop…

    This shows in your chart and a year by year breakdown would show it even more dramatically.

    At the moment, I dont see any reason why it won’t happen again. Two differences this time are increased demand from growing economies like China and India and production lags created artificially by governments like our own playing to misplaced environmentalist fears, but eventually production and technology will do what they do and gas prices will fall back into line.

  3. Tim – I partially agree with you. I am concerned that this recent spike is caused by additional elements other than the typical fears of war in the ME and price gouging that can occur with a small number of suppliers. In this case, China, India, and Japan have very strong economies and there doesn’t appear to be immediate relief in their need to buy oil.

    I heard Newt Gingrich in a speech a while back and he felt that this level of oil pricing would push through new innovation to make diversification possible. Of course, if alternate energy sources catch on, the price of oil will drop rapidly to prevent the widespread adoption of a competitor.