Oil Prices

According to this article by Bloomberg, the cost of oil to Americans is around half what it was in 1981.

The cost of a barrel of crude in the United States, adjusted for total disposable income, was $107.92 in January of this year, compared with a peak of $213.44 in the same month in 1981, according to data compiled by Bloomberg and the Energy and Commerce Departments. Oil consumption was 4.8 percent of income in 2010, compared with 9.7 percent in 1981, the data showed.

The $1 per gallon gas in the 70's was steep, but I think it remained in that range for over a decade, and inflation slowly made it more affordable.

But $4 to $5 per gallon gas will be impactful should things settle in that range.

I am fortunate to live fairly close to work. In fact close enough for a bike ride should it get to that.

I probably should have picked a different topic title because the issue that the analysts in the article picked out isn't necessarily prices, but is instead relative costs.

I could be mistaken, but I believe that the real price of gasoline is either at or near an all time high in the US. The real relative cost of gasoline (i.e., what percentage of their income Americans spend on gasoline), however, is much lower than it was in the 1970s and early-1980s. This arises from two factors: 1) Americans have much more inflation-adjusted disposable income now than they did back then, and 2) the overall fuel efficiency of Americans' vehicles has increased significantly (even though we drive more miles now than we did then, we buy less gasoline per mile driven).

I think it is clear you were speaking about relative prices. I certainly was trying to talk about relative prices. In the 90's we had low relative prices and when the price started to move up there was some anxiety.

I don't the relative prices in the 2000's reached the shock level with the rapid push to $1 in the 70's, but budgets had settled in with those comfortable, relatively low prices and the increase was uncomfortable.

If prices reach the mid $4 to $5 level we will have a similar impact, I think, to the adjustments the economy had to make in the 70's.

You can find articles suggesting that the administration supports higher prices as an incentive to develop alternative fuels. Any truth to those stories of support for higher prices?

Do we need a shock level price to fuel the drive to alternative sources?

For me the need for developing alternative and renewable fuels is separate from the price of gasoline - we need to get that done.

I doubt very much that Obama is thrilled by the idea of rising gas prices. Such an event might make it easier to develop alternative fuels, but it also makes it more difficult for him to get re-elected.

I think the point of the article that I linked to is that $4 to $5 gasoline is not at the level it was in 1981 because people are spending less of their income on gas now than they were then. That's not to say that there isn't a psychological impact to gas that costs that much, but from a purely economic standpoint, gas would need to rise to somewhere around $8 to match the percentage of our income that we as a country were spending on gas in 1981.

That aside, you don't need a "shock" level price to get to alternative fuels. You just need a sustained level of highish prices to make it economically worthwhile for people to invest in them (which will most likely come from the oil companies themselves). Plus, you can't rule out those people interested in developing alternative fuels for the environment's sake of it instead of for its economic payoff.

I agree. From the Bloomberg artice, some interesting points. The rising gas prices are not enough to turn back the economic growth we have seen of late. Part of that is that we are using less gas. Domestic energy production is up, reversing the trend of energy dependence.

The critical comparisons of relative gas prices though for me is to the drastic levels of the late 70's and early 80s. $4 and $5 would be considered highish prices I would think, and those prices will hurt. Current levels are manageable.

I had seen that Bloomberg consumer confidence number mentioned in the linked article. That may be the most significance, to turn consumer attitudes about things.

For me the move to alternative energy is a move towards complete independence and towards sustainability. I cannot understand that we cannot use the energy pouring down on us from the Sun with every roof top.

Remember that game changer we talked about once on some thread, renewable energy might be just that.

Related, I saw some recent stuff on net zero commercial building getting more affordable in some areas.

http://www.environmentalleader.com/2012/03/08/net-zero-commercial-buildings-more...

I cannot understand that we cannot use the energy pouring down on us from the Sun with every roof top.

The cost of solar energy is falling, but it's still relatively expensive compared to fossil fuels. My parents had solar panels installed on the roof of their house in late 2009 through early 2010. Had they not gotten a grant from the state and a tax credit from the feds, it would have cost them almost $40,000 to have them installed (the amount would probably be around $30,000 now). That's a lot of money to spend just to do away with a $1500 annual electricity bill and a minor bump in the value of your house (which, by the way, you will be paying higher property taxes for).

The only reason my father decided to go through with it was the renewable energy credits that New Jersey makes its fossil-fuel power plants buy. Although the price of those credits has dropped significantly over the past year as the market has been flooded with new supply.

As the price of solar panels continues to drop (thank you very much China), the cost to install solar systems will also continue to drop. I've seen estimates that the cost of solar panels could drop by as much as 50% over the next decade (which means the cost the install something comparable to what my parents have would perhaps be around $15,000). Eventually it's going to get to a point where it gets competitive enough with the cost of the existing energy infrastructure that many people will have panels installed just for the savings on their electric bills and, especially if they are looking at selling their houses immediately, the increased value of their homes.

Of course, that won't have much effect on the price of gas as very little oil is used to generate electricity. I believe only around 1.5% of US electricity is generated by burning crude. Of course, if you could design a car that ran off of solar power in addition to gas and battery power, that might have a substantial effect. I know there are a few companies out there working on what they call solar paint, which is essentially paint that can act like a solar panel, but looks like regular paint. You could paint your house or garage with (or maybe your car) and it would negate the need to actually have solar panels in the first place.