With Oil Prices at 1970's Levels - Where Are the Gas Lines?
Tuesday March 4, 2008
A reader asks:
Being old enough that I remember the gas shortages in the 70's and 80's and being that the price per barrel of oil has now reached the same price as back then (as adjusted for inflation) what I don't understand is: Where are the gas lines?High oil prices in the 1970's were a result of the OPEC oil embargo, which started in the fall of 1973. U.S. oil imports went from 103 million barrels in November 1973 to 83 million barrels in December, reaching a low of 63 million barrels in February of 1974. This meant that there was not enough gasoline to meet demand, resulting in gas lines. (Source: EIA, U.S. Crude Oil Imports)
However, the high oil prices of today are not caused by a decrease in supply. In fact, oil imports have remained at a fairly steady 13 million barrels per day for the last four years.
Today's high oil prices have been caused by a decline in the dollar. First, oil is priced in dollars, so OPEC needs to raise the price of oil to maintain its profit margins. Furthermore, as investments such as real estate and stocks decline, traders are getting into commodities such as gold and oil futures. This is causing a bidding war, and a potential bubble. (Source: USA Today, Oil Briefly Spurts Near $104 per Barrel, March 3, 2008)
For more about how oil prices affect gas prices, see Gas and Oil Prices - How Oil Prices Affect Gas Prices.
Comments
The gas lines were not due to high prices, but rather they were the result of President Carter’s bonehead response to high gas prices – price controls. Whenever the government tries to “help”, it always makes things worse.
Right now in Venezuela, their leader is attempting to control high prices by means of price controls, and the results are the same as they always are – shortages and long lines.
It seems people never learn that the laws of economics are like the laws of gravity – you can only defy them for so long, and then you are in for a hard landing.
Hi Pat,
Hey, let’s give credit where credit is due – President Nixon created price controls in 1971 in response to the first oil shock. Ford and Carter just kept them going.
See Stagflation for my source.
Kimberly
Could it not also be due to the fact that, while supply has been steady @ 13 million barrels per day for the last four years, demand has not been? Demand, I would argue, has increased over that same 4 year period. Our ability to consume fuel is beginning to outstrip our capacity to create it, and prices are reflecting that trend.
What I can’t stand are the ‘record profits’ that the gas companies are making as we are bleeding from the wallet at the pump. They try to justify it by saying that they have increased costs of exploration, maintenance of their processing plants and the cost of crude, but you would think that they would not have much of a surplus of cash after all those expenditures, right? I don’t expect them to have the highest profits ever in their history like BP if they are dealing with these higher costs of doing business. I imagine a plateau or a slight gain over the previous year, but not the tremendous gains they have made.
Most of the analysis I read emphasises new demand, particularly from China. You identify the key factors as a weakening dollar and investors getting into commodities. Is there something about new demand that I’m missing, that suggests it either doesn’t exist or hasn’t made an impact?
Reply to Karl and DCF,
Demand has increased at a much slower pace than prices, so cannot be the sole source of the increase.
World demand for oil has increased from 85.5 million barrels per day (bpd) in Q1 2006 to 87.2 million bpd in Q4 2007 – an increase of 3%. U.S. oil demand and supply has remained consistent, at 21 million bpd. World oil supply has gone from 85.4 million bpd to 86.4 million bpd during that same time period. Prices have increased from $64 per barrel to $99 per barrel – an increase of 30% during the same time period.
Yes, there is a bit of a shortfall, but not enough to account for the increase in prices.
However, this warrants another article, which I will probably post next week. Good questions!
Kimberly
One of the more interesting facets of gasoline prices is right here, in the Bay Area. Except for a place charging $05.19 (!) per gallon, newspaper reports show San Francisco having the highest gasoline prices in Our nation.
San Francisco is a forty-five minute drive from the oil refineries–maybe half an hour in the night. Salt Lake City is two or three days away.
So We have a situation in which a forty-five minute truck ride costs more than a three day truck ride. This is a racket comparable to the IRS.
I just wanted to comment on the rest of the comments before me; If China is in dire need of oil, What’s happen to all that oil that nobody talks about that comes from the South China Seas, where the Sultan of Brunei makes a Million Dollars an hour from off all that oil? 2nd)I do remember those days in the 70’s when my Mom had to wait in gas lines for hours with a bunch of kids(like us that do remember)in the back of the station wagon screaming and hollering, Bless my Mother for her enduring patience. And 3rd, now that Gasoline prices has reached an all time high in my homestate; avg:$4.44 per gallon in Hana, Maui, Hawaii, and still climbing as far the National average is concerned, What about ANWAR? DAM IT! I’m waitng ANARCHY!
What a bunch of malarky. Yes OPEC did conduct an oil embargo against us, BUT they still were selling the same amount of oil, it was just being sold to other countries. And the US imported its needs from those countries.
A small group of countries can not embargo any one country unless all the major powers agree to back it. Because OPEC has no control over where the oil goes once it leaves their shores. That would be like Egypt refusing to sell cotton to Canada. Sure they could do that but I’m guessing they could get all the Egyptian cotton they wanted through the EU or the US. Please! This question sounds like it was answered by Winston Smith from George Orwell’s 1984.
There was no shortage of oil. However the oil companies used the oil embargo to scare the country into high prices…And Nixon let them do it.
Hi Nina,
If the U.S. imported oil from non-OPEC countries, why did the total oil imported into the U.S. go from 103 million barrels in November 1973 to 63 million barrels in February 1974?
Kimberly
I’m in Georgia and we have have gas lines. 90% of the gas stations have know gas. I’d guess the national news doesn’t want to scare folks. Sure its probably hurricane caused but as you said it does remind me of the 70’s when I was a kid.
Doesn’t anyone remember that during the rationing in the late ’70’s, people were only able to purchase gas based upon their license plates… those ending with an odd number could purchase gas on odd calender days, those ending with an even number on even calender days.
I would venture to guess that if people could only purchase groceries on odd/even days that the lines would be out the doors at the grocery stores!! What a boneheaded decision that was. May we never have to experience anything like that again…
You all seem out of touch as to why there were gas lines way back when. It was not the price of gas it was the availability. Gas in 1970 was around $.35 per gallon which was up about a dime from the mid 1960s price of a $.25. The lady who said the comment about purchasing gas every other day hit the nail on the head. The era of the fuel efficient compact car was the early 1960s. My 1964 Falcon Futura convertible with a 170 cubic inch 1 barrel six cyl four speed was pushing the 35 mpg envelope way back then. The tails pipe would be a nice light tan never
black like the cars of today. We had real high test gas and no smog trash to kill the performance of the compacts. I still drive a Ford Falcon Ranchero which still gets over 31 mpg even with the trash they call gas today! Long Live American Ford Falcons the original gas miser automobile. 144 cubic inchers even did better.