Sunday, August 17, 2008

How About Those Gasoline Prices - Part 2

Early Saturday morning I had a dream. In that dream, I went out of my house one day and noticed something that completely astounded me. If I recall correctly, in the dream I was walking with my wife up the road to nearby Woodbury Plaza, and in the distance I saw the price sign on display at the BP gasoline station. What caught my attention was the price that was advertised for a gallon of regular unleaded gasoline. It read $1.75 per gallon.

In the dream, I turned to my wife and asked her, "What the hell happened to cause the price of gasoline to go down so much? I don't understand how this is possible!"

That's about all I remember from the dream.

Anyway, this past July 11, I got an e-mail from my congressional representative Steve Israel with the catchy title "Dropping Gasoline Prices in Two Weeks or Less." In his e-mail, Representative Israel announces:

Reducing gas prices in two weeks? It’s entirely possible. And no, it doesn’t depend on a massive production increase from Saudi Arabia, or even additional drilling—which wouldn’t give us a price reduction for five to ten years.

All we need to do is draw down a limited portion of the oil in our country’s Strategic Petroleum Reserve (SPR), and prices will drop dramatically. Most importantly, the effect will be immediate- unlike drilling on the continental shelf or in Alaska, which will take nearly a decade to have a significant impact.

The SPR currently holds over 700 million barrels of oil- it’s highest capacity in history! Why are we hording such a massive reserve of oil when gas prices continue to rise at an intolerable rate? According to the Department of Energy, oil from SPR deployment would enter the market in less than 2 weeks. Why wait 10 years when we can have results now?

While I appreciate Representative Israel's concern about the price of gasoline, the fact is, since he sent out the above-cited e-mail, we have had results without tapping the SPR. I don't recall the exact peak price in my neighborhood, but I believe it was over $4.30 per gallon for regular unleaded. After hitting a record of $147 per barrel, the price of a barrel of oil has since declined to about $111. Slowly but surely, the price at the pump has been declining, dipping below $4.00 per gallon. The BP gas station that featured in my dream lowered its price for regular unleaded to $3.92 per gallon today. The prices in Western Suffolk are lower by about a nickel. Last night, on the way home from a friend's house in Deer Park, I filled up my tank with gas costing $3.86 a gallon.

So, why is the price of gasoline going down? While I am sure there are a lot of different explanations and theories, one factor that has to be contributing to the decline is the fact that Americans are driving less. According to an August 13, 2008 news release from the Department of Transportation:

Americans drove 4.7 percent less, or 12.2 billion miles fewer, in June 2008 than June 2007. The decline is most evident in rural travel, which has fallen by 4 percent – compared to the 1.2 percent decline in urban miles traveled – since the trend began last November.

The full report can be read here. So far, the number of miles driven for each of the first six months of this year shows a decline from the same month in 2007. It breaks down as follows:

January -1.6%
February -0.5%
March -4.3%
April -1.6%
May -3.9%
June -4.7%

One of the things this demonstrates is that prices are outside of the ability of our elected officials to control. I don't know how much Representative Israel expected the price of oil to drop by tapping the SPR, but the market price's downward trend surely renders his proposal unnecessary. And it also begs the question, how do our elected officials "know" what the price of gasoline should be? Should we slowly deplete the SPR to maintain a price of $2.00 per gallon? And if so, how are they going to encourage motor vehicle owners to reduce their driving and use alternative modes of transportation?

While I don't have any hard statistics, I have seen anecdotal evidence that more people are riding their bicycles, as I have been doing, when carrying out local errands. Even in my own neighborhood, I notice more people with Shoprite or CVS plastic bags hanging from their handle bars (to which I wince a bit, as I wear a knapsack on my back, which is much safer), and I see some Long Island Rail Road commuters making use of the bicycle lockers at the Hicksville Station. Unfortunately, I can't make use of a bicycle locker, because I have to pick my children up from day camp, and starting next month, from school.

The big question, make that two big questions, is, how low will gasoline prices fall and for how long? I think I can be pretty confident that we won't see the price I saw in my aforementioned dream. One downside of declining fuel prices is that if they get low enough, fuel conservation efforts will slacken and the demand for gasoline will increase, thereby setting the stage for the price to go up again.

Now, I make no claim to any special oracular powers when it comes to the price of gasoline. I couldn't tell you what the price of a barrel of Brent Light Sweet Crude will cost a month from now. I do expect that the price of gasoline will stop falling at some point and that it will resume its upward march and set a new record, whereupon it will decline somewhat, before rising again. From what I have read, it seems inevitable that we will eventually reach a point where production will not be able to keep pace with demand, unless we can find a significant alternative fuel sources that will steer us away from our dependence on petroleum. But that is a topic for another post.

In the meantime, I still plan to continue doing what I have been doing, using my bicycle or walking for local errands, and planning my driving routes to minimize fuel consumption.


Techskeptic said...

I use one of these.

Works great (aside from little things which I will write up in a follow up post).

85% of us drive less than 25 miles to work. This is a perfect solution for most of us, most of the time. Its pathetic that our government can't get energy policy done right in a way to promotes security, our economy and environment. It just doesnt seem that hard to me.

Tommy said...

Thanks Techskeptic.

As for me personally, as I wrote in my post, I need to use my car to commute to the train station because I have to pick up my children at the end of the day.

At best, I could maybe use a scooter or bicycle on the occasional weekday that my wife has off from work.

Stardust said...

My hubby wants to get a Smart car, those ones what look like bumper cars at an amusement park. They are supposed to be built with a frame like a walnut and hold up well in a crash...however if something slammed into you in that at high speed you are pretty much a goner.