Long Term, The Price of Gasoline Will Keep Rising

On March 6, 2007, I wrote the following post for Autosavant:

Within the context of buying a new car or truck, people often ask me whether I think gasoline will be $4 a gallon or $5 a gallon soon. In case you have the same question, here is the general answer I give them:

Oil is being depleted steadily while demand worldwide continues to rise. There are no indications currently that any new oil reserves in any significant amounts will be suddenly available in the future. There are no indications currently that demand for oil will do anything except increase dramatically in the next 20 years.There may be hiccups in the price of oil that manifest themselves as price plateaus such as the one we had recently, but the long-term forecast is for oil prices to continue their steady trajectory upward over at least the next two decades. Oil prices will drop when there is less demand for oil. That condition is extremely unlikely in the foreseeable future. You should prepare yourself for higher oil prices, and therefore higher retail prices of gasoline until substitutes are found for one or both. To not prepare yourself for this pricing environment is to delude yourself.

So, the summing up is this: If you’re in an income range where it doesn’t really matter how much gasoline costs, then buy whatever you wish without regard to future price increases. If you are in an income range where paying $4 a gallon of gas would take up too much of your after-tax income, then I would suggest you do the math based on gasoline being $5 a gallon (it’s not that unlikely within the service life of the vehicle) and buy what you can afford to buy gas for at that price per gallon.

That was a little over five years ago.

Some people figured this out on their own, and made sure the next new car they bought after 2007 achieved good fuel efficiency. I wish I could take credit for what those people did, but not many people were reading our site in 2007, so, you know, I just can’t do that.

Many other people, however, based their fuel economy requirements, and therefore, their estimation of fuel costs, for the new vehicle they purchased post-2007 on whatever the pump price was the day they decided to buy that vehicle.

Many of those same people are now howling about the current price of gasoline and exclaiming loudly that somebody needs to do something. I have to ask this rhetorical question of those people: Do you not read the paper, watch the news on television, get on the internet, listen to the radio or have conversations with other people?

And I’m not asking that question to be petty or mean-spirited; what information were you getting that made you figure the price of gasoline was not going to go up? Because everything I’ve ever read or heard on the radio or seen on television or the internet made me believe that a long-term rise in the retail price of gasoline in the United States was definitely going to happen.

And here’s the take-away that I want our valued readers to get from what they’re looking at right now: Nothing’s changed from 2007; the price of gasoline is going to continue to rise.

Imagine regular at $5.89 a gallon two years from now. Now, imagine it at $6.89 a gallon. Not good, huh?
 You should take steps to mitigate the effect those forthcoming price increases are going to have on your life. It really doesn’t matter how you do it, whether that’s moving closer to work, whether that’s taking mass transit to work, whether that’s buying a fuel-efficient vehicle when you make your next vehicle purchase or whether it’s making more money so the price of gasoline doesn’t affect you. Whatever works best for you. Maybe it’s only one of those things, because moving or taking mass transit to work is simply out of the question, and your boss is not going to be doling out raises anytime soon. Maybe it’s a combination of all of those things. Just trying to give you the heads-up again.
 
Just as in 2007, global forces are still at work that will keep pushing the price of gasoline higher for many years to come. Protect yourself.

Author: Brendan Moore

Brendan Moore is a Principal Consultant with Cedar Point Consulting , a management consulting practice based in the Washington, DC area. He also manages Autosavant Consulting, a separate practice within Cedar Point Consulting. where he advises businesses connected to the auto industry. Cedar Point Consulting can be found at http://www.cedarpointconsulting.com.

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9 Comments

  1. I appreciate you being helpful and also the thing you wrote in 2007 was certainly right on in terms of gas prices now, but I think you are leaving out the obvious way to bring down gas prices, and that is to let Americans get to all the oil that we have here in this country. Whether that’s drilling wherever it is, or through fracking, we have lots of oil. And Canada, our friend, has lots of oil. We also have lots of natural gas, and btw, so does Canada.

    That oil on the market, and cars powered by natural gas, or electricity plants using that oil or natural gas to generate electricity for electric cars, all of that will reduce demand for oil, and the price of oil will drop. I admit those won’t happen right away, but if we start drilling now, it will start having an effect on price 10 years from now. It’s just that we have to start now if we stand any chance of paying less than $10 a gallon for gas 10 years from now.

    I agree that gas prices are going to keep going up short-term, but if we do these things starting now, gas won’t keep going up and up and up for the next 20 years. It will go up and then come down. Maybe it will come way down.

  2. @Big T

    First, I’d say that oil we get through fracking and deep sea drilling is expensive, those methods aren’t cheap. That may give you more oil, but at what price per barrel?

    Second, I would say that the environmental consequences are huge for that type of oil extraction. Should we poison ourselves and kill every living thing just so we can drive around Chevy Suburbans in this country? What are the real costs of that oil AFTER you add in the medical costs and the environmental clean-up cost?

    Third, it’s not like demand is going to stay constant. It’s going to keep rising as more people in the world get cars and more countries are able to let their citizens live like Americans do. You’re planning increases in supply off current demand, and thinking that will really bring prices down, but demand will be very much higher by the time this oil shows up, so it may be academic.

    The simplistic “Drill, baby, drill” is not a strategy, it’s a slogan. And, “Frack, baby, frack” is no better as a plan.

  3. The point is that we might be better served by weaning ourselves off the dope (oil-based energy) instead of just trying to get more and more dope. Because I just want to point out, even if we had unlimited dope (oil), the dope would eventually kill us, it would destroy our body, just like unlimited burning of fossil fuels would kill this earth.

  4. I remember in the 70s the same was said..in 1973 arab embargo.. had rationing…daylight saving time implemented.. prices doubled.. Then in 1979 the Shah of Iran deal …same thing prices doubled again!!!

    All the press was telling us gasoline ‘would never” get this low again…then in late 80s and all through the 90s it was only around a 1.00 agallon that whole decade…infact we were talkina as late as 98 the a gallon of gas was cheaper than a bottle of water!

    So count me in as one who says were ‘can see lower prices again..I seen this playbook before!

    What we need to know is the reason for ‘all the sudden run ups” in my 57 years except for embargo and Shah Iran deal it ment aprox 5 to 10 cents a gallon..not .45 cents to a 1.00 risein just a short time!

    The oil companys work in concert with the Commodies Future Trading…..they can now buy gasoline and never really want to buy it …with the computer trading these companies now can artificailly horde it then sell for when it rises…..not true demand!

    Remember the Oil Spill in Gulf…why did prices go down? I watched that whole ordeal and gasoline stayed the same and went down a little!

    We need make changes in how gasoline is traded by these hi-tech commodity trading firms and make rules that they ‘have to take delivery of it”

    Also in 2008 was the benchmark in Commodity Futures destroying out economy..that summer gasoline when to over $4.00 for reason at all….but it did the same for real estate as well!!

    I am for a all the above oil stragety, yes drill baby drill too! But one key thing when we let them drill…the oil ‘stays in this country” not exported out!

    Also if you make cars get 100 miles per gallon ..the government will tax you to get back the lost tax…so thats not a give neither!

  5. Charles, aren’t you just confirming what the writer said about the price of gas going up over the long term? There have been periods where the price has been steady or dipped, but the price of gas is higher now than in 1974 or 1984 and it was higher even before the recent run_p. We need to start moving to other energy sources. We needed to do this decades ago, and now the need is even more pressing.

  6. Vincent
    I have not given up on oil yet!!!!!!! And also let the ‘market forces’ not the govement decide about which ‘new technolgy’ is needed for energy!!!

    Natural gas because of new ways to drill is not abundant..and record low prices and enough to last over 100 years…

    Plus I dont drink the Coolaide on Global warming yet;;;;;I remember in 70s in Time Magazine I think it said .a return to the ‘ice age”

  7. Oh, here we go, all the intellecuallyaibankruupt talking points of the Tea Party imbeciles and intentionally ignorant Republican conservatives.

    Yes, we used to think the world was flat, too, but we’ve gained more knowledge since then. We also used to think that bleeding someone who had the flu would help cure them, but, wekve gotten smarter since then. So you can take those ice-age predictions from the Sixties and the Seventies and put them in with things we used to believe.

    And now I’m done responding to you because you have shown yourself ill-equipped for any sort of rational discussion where facts are considered valuable.

  8. Vincent

    Here you are trying to sterotype me as someone and jumping to conclusions…But almost all the great inventions were market driven and done better without government help!

    Dont think in industral age the government helped Henry Ford start car company..Edison with light bulb..Carnigie with steel…Westinghouse with a/c current…even say Bill Gates and Steve Jobs with personal computer! They came from need and profit is not the enemy!

    Dont you ever demonize or discount the power of people who have created the jobs in this county…and you have lived in it!!

    Here you have a government that bans cigarette smoking on TV and most sports events, but say like Nascar..no more smoking..but ‘Crown Royal and Budweiser is okay..and Vincent dont really see a line of people in the Hospital with breathing issues with air pollution.. but see a lot of innocent lives destroyed by drunk drivers…..Dont buy into pipe dreams by far left people too…

    Go ahead Vincent let the government start business for you..or pay them some extra taxes to they can give to there cronys.in business .. then see how ‘flat your wallet” is……..I will go toe to toe with you on that one!!!!!

  9. @Charles: I agree that the free and unrestricted trading of oil has rendered the price of it inaccurate. There is a lot of speculation going on, a big proportion of it can explain why prices are at these levels today. But only partially.

    The fundamental truth is that, even if the United States has a lot of oil, and even if it hordes it to itself (which, by the way, seems a bit selfish to me, given the rest of the world needs it as well), it is still going to run out eventually. Sure, demand might taper off due to new technologies. But until those become mass market, everybody will still use their gasoline cars for at least the next decade or several decades.

    My prediction is that prices will rise to a point where it will become too expensive for people to drive their cars with a freedom that we have today. People will have to resort to mass transit, especially for those who don’t really need a car (say having a bus or a train along the same route), and use the car only when it is really, really needed. Only the super-rich will be able to drive regularly, which is a sad prospect indeed.

    Maybe my article here could shed some light on what the future might be: http://www.autosavant.com/2011/12/05/what-will-be-the-future-of-the-car/

    Just my take.

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