In order to understand why the price of a gallon of gasoline is dropping, you must first learn how it rose in the first place back in the 1970’s. Although various forms of gasoline have been used for several centuries, it wasn’t until September 5, 1885 that a gasoline pump was manufactured in Fort Wayne, Indiana. This was initially for tractors used by farmers, but it was the first step towards the vast array of stations nationwide we have today.
As far as what Jake Gumper (the owner of the first pump) charged, I’m not sure, but I’m guessing it was used for personal use only. Nevertheless this was the beginning of what we so commonly referred to today as “pain at the pump”
Since the record keeping of gasoline prices prior to the 1950’s was undocumented, it is unclear as to the correct price per gallon during the era. So I will begin this travel through time beginning with 1950. The cost of gasoline was about 26.8 cents per gallon. Gas then raised a cent or so per year until 1957 where gas was at a high demand. From 1957-1969, prices at the pump only went up a total of 3.8 cents from 31 cents per gallon to 34.8 cents per gallon.
During my high school years, I remembered paying 29 cents a gallon for premium and 19 cents a gallon for regular gasoline. Imagine 12 full years with a less than a 4 cent gain. That calculates out to be a mere 1/3 of a penny per year during this period. This was short lived once the 1970’s arrived.
By 1974, the cost of fuel had risen to 53.2 cents per gallon. This is a substantial jump from the way things had been the decade prior. Gasoline rose 18.4 cents in five years! That equals out to a 48% increase. So what changed? What happened in 1974 that was different?
First, the Clean Air Act Amendments of 1970 was passed and went into effect in 1974. These amendments required automobile makers and gas stations to meet an 87 octane (minimum) standard which limited lead to 4.0 grams per gallon. The lead in the gasoline was determined to be grossly polluting American air quality and so the Act intended to cut down on these emissions by removing the lead from the gas. The environment may have benefited from this act, the American people’s wallet did not. Since the lead had to be replaced by more and more blended additives to maintain an 87 % octane in its place, it cost the oil refineries more in cost to produce automotive fuel, driving up the price per gallon substantially.
Second, several Arab nations furious over the United States support for Israel in the 1973 Arab-Israel War which started an embargo on oil against the US. This came during a time when lower domestic production of crude oil. As a result, supplies became extremely tight with “30%” less of the more costly crude oil was imported during the embargo. Extremely long lines began to occur at gas stations all over the country with some locations paying as much as 27% more for a gallon of gasoline than they had prior to the embargo.
From 1974 to 1982, gas rose steadily to 1.19 dollars per gallon, another large increase, but more wide spread than during ‘70-‘73 era. This was due in part to the lifting of the embargo causing serious damage to oil markets worldwide and OPEC stood in control of much of the oil costs. Playing catch up for all the oil reduction during the embargo was rather expensive due to the fact that oil companies were able to sell gasoline for such high prices and the America drivers were paying it. Then by 1982, the amount of lead allowed in gasoline dropped to 1.1% which is a cheaper additive and diminishing its presence in gasoline so other more expensive agents had to be used in its place. As the production cost increased for the refineries, the increase in the price per gallon was passed onto the consumer.
The price of gas rose so drastically during these turbulent times and then leveled off from 1981-1999 at the average cost of 1.1-1.2 dollars per gallon. Looking at the data, the price of a gallon of gas in 1999 was actually cheaper at (1.165) than it was in 1981, (1.19) because the cost rarely exceeded 25 cents. Oil production was up during that period and kept soundly at the pace with demand. During this time in America the lines were long and gasoline was in short supply, if someone tried to cut in line, people were getting shot from some who had been waiting in line for hours to get their small amount of gas.
In 2004, gas prices were near an all time high close to 2 dollars a gallon, a figure never before reached. By September of 2005 the price per gallon rose to 3.36 a gallon. By 2006 it fell to 2.57 a gallon the pricing roll a coaster was causing concern among consumers not only with driving habits, but also with the type of vehicles they were purchasing.
In certain areas within the United States during the summer of 2008 the cost per gallon reached the 5 dollar mark. I have always wondered what exactly happened in those volatile times to cause gas prices to over double in cost. Why did it take 4 years to meet the cost history informs us occurs about every 20 years?!
Having an understanding for economics and the world currency will help explain this question. Currently the worldwide production has peaked, the demand for fuel is ever-increasing, the value of the currency most oil is traded in, the US dollar, is terribly low and continually declining.
There are several conflicts in oil-producing nations such as Nigeria, and natural disasters have been more intense and more frequent. These factors when occurring in a short amount of time have created the perfect storm for driving up our fuel prices. With the increase in population equates to the increase in demand and it will cost the oil companies more and more money to get less oil out of the ground.
The price per gallon has been steadily dropping for the last several months down to levels seen in 2004. Due in part to less demand around the world, especially from China, automakers have been producing cars that can drive further on a tank of gas and with alternative types of fuels being used, people spend less time visiting their local gas stations to fill up. Will this trend continue, only time can tell? I know my wallet is feeling better these days at no only at fill up for my automobile, but home heating fuel as well.