March 31, 2015

What Will Gasoline Prices Do In The Future?

A few months ago gasoline cost about $3.80 a gallon.   Then it dropped considerably over several months to hit a low price around $2.10.    Now gas has gone up again and peaked around $3 to then turn around and drop a bit.     It doesn't take much research to see that these price changes are a direct reflection in the cost of oil.   Oil has gone down a lot in the past 12 months.    But will oil go up or down in the next 12 months?   What about the next 5 years?  

yes, no, maybe.

We don't know what oil will do in the next year or ten years.   You can really only take guesses at this kind of thing.    But we might get a reasonable expectation for the cost of oil and hence the retail cost of gasoline by looking at the history of gasoline and oil prices. has data on inflation adjusted gasoline prices.   I've charged the numbers from 1972 to 2013 here :

If you look at the first 30 year period in that chart from 1972 to 2002 the cost of oil started around $1.50 and ended around $1.50 (both in 2013 dollars).   I would conclude then that over the longer term in that 30 year period oil basically rose at the price of inflation.    Of course there is a 10 year period there in the 80's when oil shot up and then dropped.   Now in the more recent decade from 2002 to 2013 we see oil has again shot up in prices.   That more recent increase in price would seem a direct result of major conflicts in the middle east.  

Gasoline prices are volatile. 

In the past 40 years gasoline prices have risen over the long term at least as fast as the cost of inflation.    In the most recent decade gas has risen at a rate about 8% faster than inflation.   In individual years gas has risen or dropped as much as 25% above inflation.   In a 5 year period gas has gone up as much as 80% over inflation.

Generally I'd conclude that gasoline will go up at least as fast as inflation in the long term.  In shorter periods we could see gas go up or down 25% a year and even double in cost within a decade.

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