Ten dollar gasoline

Recently I participated in an email discussion that started from someone speculating how habits would change when gasoline hit 10 dollars per gallon.

That got me thinking, when will gasoline hit ten dollars per gallon?
There are several things working together, the first is of course the rising cost of oil ( massive demand growth from China and India, combined with falling production everywhere )
The second is the declining value of the U.S. dollar against every other benchmark.
A minor one is the increasing cost to refine the oil into gasoline, as we use up the light sweet oil and replace it with heavier oil.
Slowing the growth of the price would be:
Weakened economy due to high gas prices, more fuel efficient vehicles entering the market, driving less.

Instead of analyzing all those things, I am just going to take the historical price trends and extrapolate them out.
Over the last 10 years gasoline has increased an average of 7.5% per year.
Over the last 7 years gasoline has increased an average of 10% per year.

However there have been dramatic swings in the prices, it hit a high of $4.11 in 2008, a low of $1.61 at the end of 2008, and then back to $3.97 in 2011.

So there are 2 questions:
When will the average price of gasoline over several months sustain $10 per gallon?
When will gasoline hit $10 per gallon for the first time – even if it dramatically falls again shortly after?

Here are my predictions:
I believe that gasoline will very likely sustain $10 per gallon by Jan 1, 2023
Based on the current trends the earliest likely time to hit $10 per gallon is August 2018
Since there are 1-3 years between gasoline price peaks, I would give even odds that gasoline will hit the $10 mark before the end of 2020.
Of course, since hitting $10 per gallon may throw the world economy into recession, the price could easily plunge down to $5 per gallon within months of hitting $10 the first time.

Advertisements

4 responses to “Ten dollar gasoline

  1. Nice extrapolation. It’s consistent with what one would expect from a more careful analysis of the factors you describe.

  2. I think we’re likely to see $10 gasoline, both as a temporary spike and as a sustained baseline price much sooner. OPEC controls the biggest chunk of worldwide oil production, and member countries are allocated production quotas based on their reported reserves. This means the member countries have a large economic motivation to exaggerate their reserves. There’s no one checking their claims. Perhaps as early as next year, Saudi Arabia and other OPEC member are likely to not be able to meet their production quotas. When that happens, the wheels will come off the cart.

  3. highspeedcharging

    I totally agree Tom – I think the simple mathematical extrapolation I have done vastly underestimates the potential – but even that is scary. It just amazes me how many people are blind to it. When it will happen is not certain, but the best way to protect yourself from rising gas prices is to kick the habit now.

  4. I do think that there’s nothing magical about $10 gasoline; studies have already shown that we’re going to see massive behavior shifts with gasoline in the $4-$5 range, and even with global recession, $5 will hit soon.

    Those behavior shifts will translate very quickly to *political* shifts, provided we retain the ability to vote our governments in and out (an important proviso, since certain politicians seem to be fond of vote suppression) — anyone who can’t afford to get an electric car or move downtown will be campaigning for electric buses and trains.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s