$4 Gas Is Officially Here Again

May 10, 2011

On Sunday, the newest Lundberg Survey reported that the national average gas price reached exactly $4 per gallon for the first time since July of 2008. The mark was reached a full three weeks before Memorial Day, the unofficial start of the summer driving season, a period in which gas prices typically reach yearly highs.

Because of a large regional disparity in prices, $4 gas is nothing new to drivers in much of the country. In Chicago, which Lundberg ranked as the city with the most expensive gas at $4.50 per gallon, the price has been above $4 since early April. (Tucson has the cheapest gas according to the study, at $3.62 per gallon.)

But however superficial the milestone, the recent rise in gas prices—which hovered near the $2.80 mark just a year ago—has dramatically changed the purchasing decisions of American car buyers. Smaller, more fuel-efficient offerings like the Chevy Cruze and Ford Fiesta are flying off of dealer lots, and the market for hybrids has heated up significantly as well. According to a recent Consumer Reports survey, 92 percent of drivers said they wanted better fuel economy out of their next vehicle.

The arrival of $4 gas is also putting pressure on politicians to respond. Unfortunately, there’s not much that can be done in the short run. Proposals to push fuel economy standards to 62 mpg by 2025 will have little short-term effect. After all, 2025 is 14 years away. New drilling, if that’s your bag, will take at least that long to have an impact. (Who knows what a gallon of gas will cost half-way through the next decade?)

The more immediate and desperate question on the minds of many consumers and industry watchers alike is, “Will $4 gas last?” In 2008, average gas prices reached a high of $4.05 in July, only to fall to $1.59 by year’s end. As prices rose, carmakers scrambled to speed development of cars with new fuel-saving features, only to find that the market for those cars had softened substantially by year’s end thanks to falling fuel prices and a suffering economy.

This time around, many analysts do see a leveling off in prices on the horizon thanks to a recent decline in crude oil prices. “We may see a drop of a dime or more before Memorial Day,” said Trilby Lundberg to CNN about her group’s recent findings. Still, Lundberg says “the main drivers of oil price increases have not gone away.”

When $4 gas hit the last time, it was a shocker worthy of front page headlines. Anybody surprised by this re-visit to $4 gas has a serious case of amnesia. Nobody can predict where gas prices will go from here. But to overlook that $5 is real possibility in the next year or two—and to buy a new car assuming that gas prices will repeat 2008’s return to earth by the end of year—is to ignore the new reality of cars, energy, and the global economy.


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  • MrEnergyCzar

    Now is the time to put a floor on the price of gas at $4 per gallon and raise it 50 cents per year for 10 years. It’s the only real way to get people to change……

    MrEnergyCzar

  • Lost Prius to wife

    MrEnergyCzar, that would be a very brutally thing to do even if it would be the right thing to do. What would do the world better is to get all the “ostriches” that think oil is being produced under our feet as fast as we are using it and, therefore, an endless supply of oil, to do their homework and find out they are wrong. The only problem is that they do not want to find out they are wrong and refuse any fact that would show that they are wrong. Some of these people I work with that thinking this way say, with every small find of oil, “See, I’m right. There is no end of oil in sight.” Even now there is a question if we have or have not peaked in oil supply. These “ostriches” say this is just “greenies” and others outside the oil industries trying to drive up oil prices. They continue to say this even when the source has been proven to be in the oil industry. Until a majority of people realize we will start running out of oil within our lifetime and our children’s lifetime, people will just complain about now the government is artificially raising the oil and gas prices, whether real or not.

    Although I think your suggestion is a solution to the problem, I do not think it is the best solution possible. It would hurt the poorest section of the people, the majority, more than it would hurt the richer section of people, the minority.

  • Anonymous

    Well you could use part of the tax increase to offset the pain of the increased gas price. For example rebates on efficient car purchase, or new quality public transport, etc. The rebate could be made more important by funding it with extra charges on particularly heavy or inefficient vehicles.

    And effectively with cars that consume less fuel, there is no effective increase of tax, assuming one gets more efficient vehicles – people do that today, replace SUV with smaller sedan – money spent on gas goes down per year even with higher gas prices. True not everyone can afford a new car right away, however more efficient cars will enter the used market this way over time, and this is a program that is introduced over time.

    Furthermore planned for the next ten years should be increase in incentives to require vehicles getting lighter. This should start with reducing the weight of the heaviest cars out there. Part of the problem to get super efficient vehicles out is that despite advances in safety technology it will be difficult to ensure similar performance between 1000lbs cars and 3000lb cars.

    1000lb cars are surely safe or safer than heavier cars in standalone accidents or with other light vehicles, but will always have challenges with heavier cars. So start now and take out the heavy cars.

    Rich people who want big cars can help fund next generation of cars that are much lighter and big still. Thus enabling a few things then, eliminating the heaviest cars, funding how to make cars even lighter, and keeping the lighter cars just as safe in the mix of cars out there.

  • DownUnder

    Anon,

    Well thought. I concur with you. It’s time to get unnecessarily heavy cars out of the road. I don’t want to travel next to battle tanks.

  • indigo

    (Tongue in cheek)

    But won’t gas prices fall a lot on May 22nd the day after the 1.4 billion Christians are “taken up”?

  • Capt. Concernicus

    Living in the Chicago area we’ve been paying over $4 for about a month. It got as high as $4.45 here, but it dropped to $4.31. Big whoop.

    @ Myenergyczar,

    Your solution doesn’t solve the problem. It only hurts the middle and lower class even more because now they have more of their income devoted to fuel. Most can’t afford to just go out and buy a new car, especially a hybrid car. Sure you can buy a diesel if you travel mostly on the highway. The problem is the people that trade oil like it doesn’t affect anyone else. Think about it. In 2008 oil spiked to $147 and gas prices rose to $4.50 around by me. In 2011 oil spiked to $113 and gas prices rose to $4.45. There seems to be a disconnect between the price of oil and price of gas.

    Punish or limit those that trade oil as well as develop and improve technologies that will raise the fuel efficiency of vehicles.

    Honestly when someone blurts out, “Raise gas taxes!!” hasn’t really thought out the consequences of such a knee jerk reaction. Think about how it not only affects people at the pump, but the people at the grocery store and the higher prices that are passed on to the consumer. There’s a whole list of companies and customers that will be severely affected. Not all of us make over $100k like you might.

  • Walter Lee

    Regular 87 oct gas cost $4 and the prices are rising. I still see a good number of vehicles wasting gas by racing to stop at traffic lights and doing jack rabbit starts . A good percentage of the drivers in MD/DC/VA just are not phased by the latest gas price increases. It doesn’t look like Mass Transit ridership is up

  • MrEnergyCzar

    Yes, it would hurt everyone a lot but would force people to adapt and change the way they live, live closer to work, grow more of their own food, vote for more mass transit etc… Feebates are another good idea. Get a credit for buying a prius and pay a fee for buying a guzzler. That doesn’t cost taxpayer money. The guy paying the guzzler fee won’t like that the prius guy gets his money…..

    MrEnergyCzar

  • Capt. Concernicus

    So you’re in favor of throwing people under the bus by making them take on MORE debt by forcing them into a $15k+ vehicle? Isn’t that one of the major reasons the economy is hurting so much?

    Yeah, I guess you could have everyone live on top of each other. I guess there will be more NYC’s, LA’s, Chicago’s etc. How will you grow your own food if you’re only living in cities or high urban areas?

    Just throwing those rebuttals out there….

  • Anonymous

    “After bailing out two of the Detroit 3, federal officials are wary of imposing costs that would depress car sales and cost jobs. Speaking recently in Detroit, EPA official Margo Oge said the agency does not want to hurt auto sales. [...]

    Alliance of Automobile Manufacturers, an industry lobbying group, has warned that the 62-mpg CAFE standard could cut car sales by 25 percent, costing the industry 220,000 jobs. [...]

    Analyst Sean McAlinden estimates that a 62 mpg bogey will require extensive use of pricey technology such as hybrids. [...]

    The debate is about how aggressive the rules should be. The 62-mpg rule requires a 6 percent annual improvement. An alternate proposal, requiring a 3 percent annual increase, would mandate a CAFE of 47 mpg for 2025. A compromise between the two positions is also possible.

    Backers of stronger rules dispute industry cost estimates for hitting 62 mpg. The federal notice of intent to create rules, done jointly by the EPA and NHTSA, estimates price increases ranging from $2,800 to $3,500 per vehicle. [...]

    The EPA/NHTSA statement adds that with a 62-mpg CAFE, 2025-model vehicles would save $5,700 to $7,400 in lifetime fuel costs. David Friedman, deputy director of the Union of Concerned Scientists’ clean vehicle program, said monthly fuel savings could outweigh increased monthly car payments for buyers. [...]

    The two sides also debate the feasibility of getting to 62 mpg with current technology. Sandy Stojkovski, president of AVL Strategic Analytic Services, a technology consulting firm in suburban Detroit, said automakers could meet the less aggressive 3 percent target — for 47-mpg CAFE — with advanced internal combustion engines. [...]

    Environmental groups counter that hybrids aren’t the sole option. Drew Kodjak, executive director of the International Council on Clean Transportation, said a Lotus Engineering study found that automakers could use weight reduction more extensively.

    According to the study, automakers could cut vehicle mass, excluding powertrain, by 38 percent for only a 3 percent cost increase. In many cases, the study proposes replacing steel with magnesium, plastic, aluminum and other composites. [...]“

    from ’62 mpg: CAFE debate will reshape industry’.

  • Capital

    Mass Transit, forcing people to pay hire taxes for oil. Mr energy czar is a Communist!

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