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Invisible Hand on the Pump

Gasoline prices have spiked to the highest levels ever seen in the USofA, somewhere between $3.60 and $3.80 per gallon (about $1.00 per litre). That causes a lot of pain for people who drive 40k miles per year at 20 miles per gallon (pretty close to the average for commuters) and run up a tab of over $600 a month for gasoline alone. But will this change anything? Is there any evidence that higher gasoline prices will encourage conservation?

For the last 20 years or so, refineries have been at maximum capacity in the USofA. The overall delivered gasoline hasn’t changed a lot in response to fluctuations in price. But we do have some data on it, thanks to the friendly folks at the Department of Energy’s Energy Information Administration, who keep track of this:

http://tonto.eia.doe.gov/dnav/pet/hist/a103600001m.htm
http://tonto.eia.doe.gov/merquery/mer_data.asp?table=T09.04

I took this data and made a few graphs. The first one is of deliveries of gasoline to gas stations and price (adjusted to 2007 dollars) over the years, from 1984 to 2007. It’s not a ton of data, but you can see that when the price drops the deliveries go up.

First, however, I have to apologize. Apparently, Author’s Den does not allow the “img” tag in blogs, which is inexcusable. I’ve tolerated the inability to do inline links for a while, but this is the last straw. It’s time for me to get a new platform, because this is pitifully bad. My apologies.

It’s hard to make out trends from this graph, but by graphing deliveries (as consumption) versus price we can get the relationship between the two:

http://farm3.static.flickr.com/2006/2504375666_b340183970.jpg?v=0

There is a trendline on this graph, and it’s not a great one. Statistically, the R-squared of 0.19 is pretty lousy. But it suggests that every dollar of price increase causes a decline of 3.1 million gallons a day in consumption, or about 5%.

Is it possible that supply and demand will work this out? Is a higher gasoline price the solution to weaning our nation off of oil dependency? Time will tell, and I can’t wait for data from 2008. But so far, it looks like the answer is yes, the Free Market� still works. Huzzah!

One thought on “Invisible Hand on the Pump

  1. Pingback: Gasoline Consumption Drops | Barataria – The work of Erik Hare

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