Carpe Diem

Despite recent increases, US gas prices are consistent with oil prices and cheaper than any country in Europe

fredgraph

There have been a lot of news reports lately about rising gasoline prices in the US (now about $3.77 per gallon), although gas prices were actually higher than that last fall ($3.88 per gallon), last spring ($3.94 per gallon) and in May of 2011 ($3.97 per gallon), see blue line in chart below.  In fact, retail gasoline prices today are just slightly higher than the average over the last two years of $3.60 per gallon.  Further, the chart below shows that retail gas prices have roughly followed the rise and fall of crude oil prices (Brent-Europe, since we import 60% of our oil at that price) over the last five years. Brent oil prices are currently $115 per barrel and retail gas prices are $3.77 per gallon. The last time brent crude oil prices were $115 per barrel in October 2012, retail gas was selling for $3.85; and when brent crude was $116 per barrel in May last year, gas prices were $3.83 per gallon, so current gas prices are in line with crude oil prices.

Update: Last year, there was a 31-cent jump in gas prices over a 4-week period about this time of year, and two years ago there was a 43-cent increase over a comparabale 4-week period. Increases in gas prices at this time of year have been consistent over the last three years.

Moreover, as the table below shows, gasoline prices in the US, even if they go to $4 per gallon or higher, are still a relative bargain compared to the retail prices in all countries in Europe.

County $ per gallon
Turkey $10.29
Norway $10.22
Netherlands $9.38
Italy $9.08
Denmark $9.04
Greece $8.86
Sweden $8.80
France $8.79
Belgium $8.61
Portugal $8.61
Finland $8.34
Germany $8.33
United Kingdom $8.08
Ireland $8.03
Iceland $7.79
Slovenia $7.78
Israel $7.75
Spain $7.55
Slovakia $7.51
Hungary $7.41
Malta $7.38
Switzerland $7.30
Austria $7.28
Albania $7.20
Czech Republic $7.18
Croatia $7.14
Cyprus $7.08
Luxembourg $6.99
Serbia $6.96
Lithuania $6.95
Latvia $6.94
Romania $6.93
Estonia $6.90
Montenegro $6.88
Bulgaria $6.77
Andorra $6.69
Poland $6.61
Macedonia $6.47
Kosovo $6.28
Bosnia and Herzegovina $6.15
Morocco $6.07
Moldova $5.45
Jordan $5.28
Ukraine $4.85
Georgia $4.57
Russia $3.99
Belarus $3.92
U.S.A $3.74
Tunisia $3.53
Egypt $1.53
Algeria $1.08
Kuwait $0.86

Source: Fuel prices in Europe on February 21, 2013

53 thoughts on “Despite recent increases, US gas prices are consistent with oil prices and cheaper than any country in Europe

    • It is cheap because taxes are lower. Period. What the US spends on it military adventurism does not impact American prices any more than it does European prices. And let us note the huge demand by the US military. That demand pushes prices higher.

  1. I wonder what the prices look like with the taxes subtracted?

    And I’d agree and like Ben, worry more about our refusal and inability to confront the reality of our total defense spending – than gas prices which on a gnat on the proverbial dogs butt compared to what each of us pays for “defense”.

    we “believe” we spend about 600 billion on “defense” but the reality is when you total up ALL of our “defense” costs, it’s almost as much as we take in in income taxes – total and MORE than the next 10 countries COMBINED.

      • so if taxes are subtracted, it will be the same price in each country?

        we already know it’s pretty cheap in countries like Saudi Arabia and Venezuela right?

        • What part of it’s a global market don’t you understand? The costs are impacted by the transportation difference but that is tiny because the industry is very good at moving oil around. A bigger impact is refinery capacity but that tends to work out over time as capitalists step up and invest in capacity that meets a market need. The biggest impact is taxes and subsidies.

          • re: ” The biggest impact is taxes and subsidies”

            subsidies?

            also.. given the likely truth of your premise – do you think if we actually saw the raw per gallon prices that they’d all be within a nickle a gallon of each other or 50 cents or…..???

            You’d think an entity like Heritage or CATO or the National Tax Foundation would have a list of fuel taxes per country…. and from that.. fairly easy to then derive the raw prices…

            I have a suspicion that the difference are more than trivial but nothing to back it up… and may be dead wrong.

          • subsidies?

            Many oil producing countries subsidise their consumers. They sell gasoline at less than the total cost that it takes to produce it because their consumers do not have to pay $100 a barrel market price for the crude and do not have to account for other costs.

          • subsidies?

            Oil-rich nations like Saudi Arabia and Kuwait subsidize gasoline and oil prices.

            also.. given the likely truth of your premise – do you think if we actually saw the raw per gallon prices that they’d all be within a nickle a gallon of each other or 50 cents or…..???

            Not necessarily. Many more factors go into it then just the cost per barrel: transportation costs, domestic demand, refinery capacity, that sort of thing. All these would raise (or lower) price per gallon.

          • Oh, I agree. I’m collecting the data later today.

            Hopefully, I’ll have time to post it today :-)

  2. gasoline prices are highly seasonal.

    the heavy seasonality in gasoline prices is why they tend to be looked at in comparison to the same day (or week) last year.

    vs a year ago, gasoline is up from 3.579 to 3.778, a 5.6% increase.

    the wholesale price is up even more and very nearly at 12 month highs which is very unusual for this time of year and likely presages further increases at retail.

    http://fuelgaugereport.aaa.com/?redirectto=http://fuelgaugereport.opisnet.com/index.asp

    some of this has to do with refinery maintenance and the prep for the shift to summer blend, but this is a meaningful increase.

    gasoline prices generally peak at the beginning of the summer. i have no idea if we are going to set records this year, but it does not seem impossible or even implausible.

  3. also.. given the likely truth of your premise – do you think if we actually saw the raw per gallon prices that they’d all be within a nickle a gallon of each other or 50 cents or…..???

    It is a simple supply/demand situation. Without government meddling in the markets price differentials would be closed quickly through arbitrage and where profits were available to be made there would be investment that would drive down the price as it increased supply.

    • “Without government meddling in the markets price differentials would be closed…”

      Yep, if I am interpreting the data correctly.

      Here is a comparison of New York gasoline commodity prices, and the Los Angeles basin government mandated reformulated gas with oxygen blend, to oil:

      The correlation coefficient of Gasoline to West TX Intermediate Crude is 0.802433 BUT the correlation coefficient of Los Angeles Reformulated RBOB Regular Gasoline to West TX Intermediate Crude is only 0.656858, for the last ten years.

      • Not at all suprising, given that PAD 5 (the west coast) is mostly Ca Alaska and imported oil. Little oil from North Dakota, or Texas gets there, being refined in Tx or the midcontinent or now moved by rail to the east.

        • PAD is the Petroleum Administration for Defense system set up in WWII It Alaska, California, Arizona, Hawaii, Nevada, Oregon and Washington
          Pad iV is the rocky mountain states,
          Pad III is the Gulf Coast
          Pad II is the Midwest
          Pad I is the east coast.

          • Lyle, if PAD 5 includes WA state, then one of the sources is building Bakken crude to replace AK crude.

      • The correlation coefficient of Gasoline to West TX Intermediate Crude is 0.802433 BUT the correlation coefficient of Los Angeles Reformulated RBOB Regular Gasoline to West TX Intermediate Crude is only 0.656858, for the last ten years.

        The boutique blend regulations that prevent arbitrage opportunities as shortages develop in any particular region add to the price of gasoline. But I am not sure that WTI is a good index to use because it tends to deviate from global benchmarks due to the nature of the Cushing setup.

  4. While I agree with Vangel that crude oil is traded globally, there are many variations in crude oil prices – even within the same nation. The biggest causes for variation in crude prices are transportation and sulfur content.

    Here’s a link to an explanation for some of the variation within the U.S.

    http://www.mineralweb.com/news/oil-prices-vary-a-lot-across-the-u-s/

    From the article:

    “That means crude in West Texas and North Dakota sometimes sells for as much as $40 less than similar crude oil in Europe or even closer to home – Louisiana.”

  5. European gasoline prices are interesting to an economist, but probably not relevant to the average U.S. consumer who puts gasoline in their car every day. According to recent BLS data, the average consumer spent the following amounts on gasoline and motor oil yearly: 2009-$1986, 2010-$2132, 2011-$2655. Those are yearly increases of 7.35% and 24.53% respectively.

    If I were a U.S. driver who wanted to compare gasoline prices, I would want to know what amount of their yearly income that Europeans spent on gasoline and oil and how much that amount has increased, decreased, or stayed the same the last few years (most sources have the average U.S. gasoline cost at about 8- 9% of yearly income).

    http://www.bls.gov/news.release/cesan.nr0.htm

    http://money.cnn.com/news/storysupplement/economy/gas_prices_by_state/

    • Walt: “(most sources have the average U.S. gasoline cost at about 8- 9% of yearly income).”

      What sources are those, Walt?

      I looked at the BLS consumer expenditure tables released last September. They show these numbers:

      All consumer units
      Avg annual pre-tax income – $63,685
      Avg gasoline/motor oil expense – $2,655
      % of income on gasoline/motor oil – 4.17%

      Two earner consumer units
      Avg annual pre-tax income – $92,683
      Avg gasoline/motor oil expense – $3,502
      % of income on gasoline/motor oil – 3.78%

      http://www.bls.gov/cex/#tables

      Are we looking at different tables? I think the Consumer Expenditure Survey I pulled these figures from includes only consumer income and only consumer expenditures. Does your 8-9% figure include all the gasoline and diesel consumed by all transportation sources?

      • John,

        I posted the sources above. I used the first source (BLS) for the yearly gasoline percentage increases using exact numbers and the second source for roughly percentage of income by state (CNN). I’m sure the data can vary depending on how we use it and from where we use it.

        My personal amount for gasoline and diesel fuel is about 6% of my 3-month draw (I don’t use an income basis for my budget).

        • Walt: “I used the first source (BLS) for the yearly gasoline percentage increases using exact numbers and the second source for roughly percentage of income by state (CNN).”

          But then you really do not know what data CNN used, do you? Have you not have enough experience with the national media to realize that about half of what they report is mistated?

      • john-

        i think that may not be the best data series to use.

        average income gets heavily skewed by a small number of very high earners.

        median income is a great deal lower.

        it’s more like $50-52k/household.

        that makes gasoline look like a bit over 5% of income if 2665 is accurate/comparable to household.

        • morganovich,

          I am sure your methodolgy is more accurate than mine, too. I just used a quick Google search and found that CNN visual. I think the yearly rate of increase is what most people will notice who budget to 100% (or more) of their income.

        • morganovich: “average income gets heavily skewed by a small number of very high earners. median income is a great deal lower.”

          While that may be true, morganovich, I was responding to Walt’s statement:

          Walt Greenway: “most sources have the average U.S. gasoline cost at about 8- 9% of yearly income.”

        • $2,655 is not the gasoline expenditure for the median household. It is the average gasoline expenditure for all consumer units. Consumer unit’s do not represent households.

          Both the pre-tax income and the average gasoline usage come from the same table – meaning that they are measuring the same population.

          If we start use average gasoline expenditures for all consumer units, we should compare that to the average income for all consumer units. When we start trying to apply orange’s statistics to apple’s statistics – as I think you have just done – we completely distort the data.

          • what is the difference between a household and a consumer unit?

            i think household is actually a larger number of people.

            the energy dept says that the expenditure per household was $2912 in 2012.

            median income was $50k in 2011. we do not have a 2012 figure yet, but it was certainly not up more than the 10% jump in gasoline expenditures.

            i suspect the number was more like 2% meaning that gasoline jumped to about 5.7% of expenditures.

          • also:

            i see what you are saying about comparing averages and averages, but i think it paints a misleading picture here.

            i am not aware of any evidence that the wealthy have increased their driving more than the middle class or poor.

            but with fairly stagnant wages at the low end and far more of a rise at the high end as equity and bond markets have soared, i think that average does not really convey a typical budget.

            but these big gains at the high end are not going to result in much (if any) additional driving.

          • If we start use average gasoline expenditures for all consumer units, we should compare that to the average income for all consumer units. When we start trying to apply orange’s statistics to apple’s statistics – as I think you have just done – we completely distort the data.

            True. But the aggregate data is distorted to begin with. Given the fact that the top 1% earn such a disproportionate amount of the income the averages are totally meaningless. You are better off measuring the amount spent by the first 1000 people in Target or Wal-Mart than you are by looking at any data series reported by the government. Walt is probably closer to the truth than you are but it is important to understand that there is no truth in aggregates.

          • morganovich: “the energy dept says that the expenditure per household was $2912 in 2012.”

            Can you provide the link that shows such a number? I’d like to see their methodology. My guess is that the Energy Department divided total U.S. gasoline spending by total U.S. households. Of course, that would be awful.

          • morganovich: “i am not aware of any evidence that the wealthy have increased their driving more than the middle class or poor. ”

            Oh, that’s not a good argument at all. I am not aware that the poor buy very much gasoline at all – but neither your awareness nor mine amounts to anything we should be relying on for analysis.

          • Oh, that’s not a good argument at all. I am not aware that the poor buy very much gasoline at all – but neither your awareness nor mine amounts to anything we should be relying on for analysis.

            They don’t have to buy much gasoline. The question is how much do the poor buy as a percentage of their income. I would guess that it is a much higher percentage than it is for the rich.

          • vangel: “Given the fact that the top 1% earn such a disproportionate amount of the income the averages are totally meaningless.”

            They mean a lot to me. Averages are not meaningless. Just because they do not mean what you want them to mean is no reason to discard them altogether.

          • They mean a lot to me. Averages are not meaningless. Just because they do not mean what you want them to mean is no reason to discard them altogether.

            You can use averages to support a narrative but not to talk much about reality. When a few percent earn as much as the bottom 50% do it is hard to average their gasoline consumption and talk about it in a meaningful way.

      • Here’s some statistics which may be more acceptable to Morganovich and to Walt.

        Gasoline expenditures per consumer unit, by income quintile

        First income quintile
        Avg pretax income – $9,805
        Avg gasoline/motor oil spend – $1,227
        % of income on gasoline/motor oil – 12.51%

        Second income quintile
        Avg pretax income – $27,117
        Avg gasoline/motor oil spend – $1,981
        % of income on gasoline/motor oil – 7.31%

        Third income quintile
        Avg pretax income – $46,190
        Avg gasoline/motor oil spend – $2,694
        % of income on gasoline/motor oil – 5.83%

        Fourth income quintile
        Avg pretax income – $74,019
        Avg gasoline/motor oil spend – $3,295
        % of income on gasoline/motor oil – 4.45%

        Top income quintile
        Avg pretax income – $161,292
        Avg gasoline/motor oil spend – $4,073
        % of income on gasoline/motor oil – 2.53%

        I think we can assume that the average of the middle quintile would be an acceptable substitute for the median. So the median consumer unit in the U.S. spends about 5.8% of their pre-tax income on gasoline.

        Walt argued that the AVERAGE gasoline spend was 8 to 9 percent of income. The average for consumer units is 4.17%. If morganovich and vangel believe that average consumption is not valid, then in their minds both Walt’s figure and mine should be invalid.

        In any case, I have supplied much more data than any of the three of you have provided. If you don’t want to accept any of these numbers, I really don’t give a damn.

        • Walt argued that the AVERAGE gasoline spend was 8 to 9 percent of income. The average for consumer units is 4.17%. If morganovich and vangel believe that average consumption is not valid, then in their minds both Walt’s figure and mine should be invalid.

          Both are invalid because there is no such thing as the average experience when we deal with individuals. That is why such measures are of little use to anyone other than the empty suits who want to pretend that they know far more than they do. Yes, we can use such numbers to support our narratives because we are lazy and do not have time to make a more complete argument but ultimately they mean very little because the variation in individual experiences is too great.

          What exactly can I learn if I look at the average gasoline spending for New Yorkers? I would imagine that many poor people who live in NYC do not have vehicles and as such will not purchase any gasoline. I imagine the same is true of many people who are in public housing and live in urban areas. If they could not afford the parking why would they be driving around? On the other hand, the rich may use cabs and limos far more frequently. I doubt that the gasoline that they use up in those trips show up in the data that you are citing. Keep in mind that those figures are given to the nearest dollar. But there is no way for the numbers that are used to be that accurate and for the people who put together the reports to make the necessary adjustments to make the numbers mean something. Like I said, above, meaningless numbers so that people can pretend that they know far more than they do.

    • If I were a U.S. driver who wanted to compare gasoline prices, I would want to know what amount of their yearly income that Europeans spent on gasoline and oil and how much that amount has increased, decreased, or stayed the same the last few years (most sources have the average U.S. gasoline cost at about 8- 9% of yearly income).

      I think that would lead to misleading conclusions. After all it is one thing to drive into a city from a large home in a suburb as you use a nice midsize vehicle but another to be taking public transportation or driving a tiny vehicle with a 1.2 l engine that few consumers in the US would bother even looking at. Europeans have adjusted to their higher prices by having a lower standard of living. Far more Europeans live in tiny apartments and rely on public transit than do in the US.

      • “Far more Europeans live in tiny apartments and rely on public transit than do in the US.”

        Except for the effect on the price of public transit, the gasoline price per gallon would not be important to the Europeans you mention. Maybe the price paid to commute to work would be better comparison than the price per gallon of gasoline.

        I believe most Americans care about the price of gasoline in Europe about as much as most of the posters here care about the minimum wage over there compared to ours.

        • Except for the effect on the price of public transit, the gasoline price per gallon would not be important to the Europeans you mention. Maybe the price paid to commute to work would be better comparison than the price per gallon of gasoline.

          Perhaps but complexity and reality get in the way. Many public transit systems are subsidized so the cost of commuting tells us very little. But the fact that middle class Europeans live in tiny apartments that the American poor would find too small does tell us something.

          I believe most Americans care about the price of gasoline in Europe about as much as most of the posters here care about the minimum wage over there compared to ours.

          Many people are interested because they want to be able to understand reality better. They want a lens through which to see thins as they are. Sadly, their bias and education often gets in the way and they are as clueless as those that are ignorant with the exception that they do not think that they are as clueless as they are. Nassim Taleb wrote a great book about the subject. You might want to take a look at it if you have the time.

          • “Nassim Taleb wrote a great book about the subject.”

            Thanks. I took a look at his website. Taleb sure does not think much of economists or a lot of other groups for that matter. I’ll download one of his books to my Kindle and check him out further.

    • Here is a idea, place a 35% tariff on all fuel exports.

      LOL…All that would do is cut production. Refiners are not stupid. They are in the business of making money and will not destroy capital just because idiots want prices that are lower than what the market dictates. If you want cheaper gas why not go after the biggest cost factor; taxes? Stop adding duties on imports and stop taxing gasoline as much.

  6. Most people don’t understand how far back the price of gas that we pay today was set up back in 1999-2001. When the oil industry closed 26 refineries on the west coast alone. It is the greatest lie forced on the whole world.

      • so what’s the REASON right now that gas prices have gone up, what 40 cents in a month or two?

        what caused that?

        It must be evil speculators and those evil refiners. :)

      • Gas stations pay for gasoline when it is delivered, so the amount you pay today is an estimate of what the station will have to pay for its next delivery of gasoline. If the price of gas goes up, the forecast estimate is the next delivery will cost more money than the last delivery (there are some other factors such as what the competition is doing, too).

    • Most people don’t understand how far back the price of gas that we pay today was set up back in 1999-2001. When the oil industry closed 26 refineries on the west coast alone. It is the greatest lie forced on the whole world.

      I think that most people understand that when oil is $24 per barrel the price of gasoline will be lower than when oil is $96 a barrel. And let us not blame the industry for actions forced by the EPA and other government regulators. The US will not approve many new refineries unless the owners are forced to spend so much money that they cannot cover their costs of refineries. Instead of building new capacity the refiners increase output by upgrading older facilities.

      I suggest that you look at the numbers. Not only is oil around four times more expensive than it was in 1999 US gasoline production is up by 20%. You can try and blame the refiners but there is no data to support your claim.

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