US gasoline a bargain

July 4, 2005
Do high prices suppress demand for gasoline in the US? Apparently they don’t have much effect, as revealed by data from the Energy Information Administration.

Do high prices suppress demand for gasoline in the US? Apparently they don’t have much effect, as revealed by data from the Energy Information Administration. The latest figures show that motor gasoline demand in the US is up from a year ago.

The US average retail price for regular gasoline as of June 20 was 22.4¢/gal higher than it was this time last year, according to EIA.

But gasoline is still a great bargain in the US, despite price spikes, says a recent study by John S. Herald Inc. The energy research firm has conducted the gasoline price analysis for the second year in a row and the eighth time in the last 15 years and has always reached the same conclusion.

Compared with their counterparts in European countries, US consumers enjoy the lowest retail prices for gasoline and automotive diesel.

In May, the retail price of premium gasoline averaged $2.39/gal in the US, according to EIA. At $6.36/gal, the price of premium gasoline in the Netherlands sold at 2.7 times that in the US. Also, the price of premium gasoline that month was:

• $6.09/gal in the UK.
• $5.92/gal in Belgium.
• $5.91/gal in Italy.
• $5.81/gal in Germany.
• $5.51/gal in France.

John S. Herold’s analysis finds that in April, 50% of the retail price of gasoline in the US was the cost of crude. A 20% share went to state and local taxes, 21% was a refining margin, and the remaining 9% was a marketing margin.

Chunky Monkey

With the recent price spikes, gasoline is still relatively inexpensive in historical terms and in comparison with other items in Americans’ budgets, the John S. Herold analysis found. For example, the study compares the price of a barrel of crude oil with the same volume of some common consumer items. The WTI spot price on Apr. 29 was $49.72/bbl and:

• Ben & Jerry’s Chunky Monkey Ice Cream was $1,407.84/bbl.

• Budweiser beer was $409.92/bbl.

• Coca Cola was $119.29/bbl.

• Flonase was $822,624/bbl.

• Visine was $37,578.24/bbl.

Even with unleaded regular gasoline selling for more than $2/gal, the increase in prices since 1982 is 25% lower than the increase in food prices, 50% lower than the rise in housing costs, 70% lower than the spike in medical costs, and 80% below the surge in college tuition, the firm found.

The John S. Herold study finds that some popular summer pastimes have endured considerable price spikes, too. Movie tickets, averaging $6.21 last year, were up 57% from a decade earlier. And the average cost of a night in a hotel room in the US was $86.41 last year, up about 30% from 1995 rates.

A family of four enjoying a major league baseball game this year will pay 5% more than last year and 70% more than in 1995. These figures are based on the Fan Cost Index published by Team Marketing Report Inc., which tracks the cost of four game tickets, four small soft drinks, two small beers, four hot dogs, two game programs, two adult caps, and parking.

Efficiency gains

With inflation and improved fuel mileage, the cost of gasoline per mile driven is less than half of 1981 rates and represents less than 15% of the average yearly cost of operating a full-size passenger car, according to the John S. Herold analysis.

The study concludes that one reason that fuel price hikes have not punished drivers more severely is that average gasoline usage has been nearly flat at about 10 gal/week/vehicle over the last 10 years. The budgets of most US drivers can absorb the $5/week increase that results from a 50¢/gal increase in the price of gasoline.