Dumbest question of the year: why are gasoline prices higher than in 2019?

by philg

Here’s the dumbest question of the year, I think…. if we believe Econ 101, prices are generally determined by supply and demand.

Gasoline prices in 2019 averaged $2.60 (eia.gov). Right now it is about $4.50 per gallon (also eia.gov), though in San Diego last month it was $6.999:

The supply of dinosaur blood doesn’t change all that much from year to year. Demand should actually be lower right now compared to 2022 due to (a) some Americans working from home, cowering in place, etc., and (b) airline staff shortages reducing the number of planes flying. Statista says that worldwide oil demand is slightly lower right now than it was in 2019.

If both supply and demand are roughly the same as in 2019, why is the market-clearing price different?

31 thoughts on “Dumbest question of the year: why are gasoline prices higher than in 2019?”

    • Some of gas price increase resulted from Putin’s war on Ukraine and I ready to pay that premium but gas on Jan 20 2022 was already over 1 buck per gallon over it was on Jan 20 2021 when new Democratic president took office and much higher before “election 2020” took place.
      Some of it was anticipation of hurdles but a bulk of the increase is because of new regulatory hurdles multiplied by increased demand. reduction of relative supply of good in demand by 5% does not mean that prices are going up by 5%. The good is used by producers and distributors and raises bottom line for them, then buyers compete on auction for the scarce good and outbid each other which results in significant increases. This bidding process results in producing best information where good is needed the most, attempting to micromanage it results in more entropy (loss of information) , shortages and as a result even higher prices.

  2. The war in Ukraine was something the lion kingdom never saw coming. The craziest blog commenter couldn’t compare to Putin. It’s now entered a stalemate with no sign of the Russian oil embargo ending.

    • You would have seen it coming if the media reported on:
      – 8-year conflict in Donbas, Ukraine vs ethnic Russians who voted for independence, 14000 killed
      – Ukraine amassing troops for final cleansing of Donbas
      – Putin warning Ukraine to withdraw said troops

    • Literally Hitler in Ukraine and no one reported on it. So Putin had to pull Stalin on those nazis. Propaganda much, Comrade Anon?

    • “So Putin had to pull Stalin” – rather he pulled Catherine the Great restoring Novorossiya in its historic boundaries … and incidentally adding by this some feminine touch to his “toxic masculinity” – just like toxically emasculated BoJo the Clown wanted shortly before zir resignation.

  3. Because nothing actually follows econ 101. But you’re strictly a 0/1 person so you’re forgiven for not picking up on intricacies of human existence.

    • Everything actually follows econ 101. If you understand micro-economics and didn’t spend years “learning” macro-BS, of course.

      This is because the basic laws of economics (such as the law of supply and demand) are simple qualitative statements (quantitative econ is total BS, a drunkard search fallacy on steroids) logically following from the simple physical facts (the law of conservation of mass, etc). Micro-economics doesn’t require economic actors to be rational or conscious. In fact, one of the major advances in evolving programs (i.e. “discovery” of recursion by an evolutionary algorithm to solve Hanoi Towers problem) was achieved in a simulated economy of really stupid agents (the Hayek Machine).

    • Well @averros, agree on econ 101. Still, “simulated economy of really stupid agents” is stupid. Recursion solution for Hanoi towers is easy to come up with but requires a lot of computing resources, particularly memory. I would think that this is one of first thing that stochastic AI would try, because it is so simple, and it is just an accident that the solution worked. I’d expect AI be good at something that is harder for humans, such as discovering iterative algorithm for solving Hanoi Towers. Which is should because there is finite number of transformations between simple and more complex ML
      I always like how ML marketers show how ML derive Newtonian, Maxwell, Relativity and Quantum Mechanics equations and never something that is not known, such as micro-gravity equations.

    • @averros it’s like arguing social sciences follow simple laws of physics because in the end, humans are just a collection of subatomic particles.

      Just that most basic form of supply and demand has been thrown out the window so many times that bringing it up as “law” is beyond ridiculous.

  4. Good news: ECON 101 works like a clock
    Bad news: US crude production has fallen about 2% between same periods of 2020 and 2021 and although crude production increased a little in 2022 comparing to 2021it is still over 1% below what it was in 2021. https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRFPUS1&f=M
    Add that Joe must support his superior in Beijing with Trump’s strategic oil reserves
    and that US population grew at the same time and that Blue state Governors release huddled masses back into general population now that Trump was outsmarted by Dem lawyers by the end of 2020 and thus huddled masses strive to go about their pre-COVID TM business which requires energy

  5. Maybe the supply of dinosaur blood is roughly the same, but producers believe it will be harder to extract it in the future? They’re pricing in future risks/constraints?

    Or maybe it’s because there’s a hypothetical cartel that is deliberately limiting extraction and fixing prices?

  7. The demand curve for gasoline is very inelastic. The graphs I see have daily US production going from 9 million barrels a day in 2016, to almost 13 million in 2020, then back down to around 10 during the Biden administration. So to say the supply doesn’t change much isn’t really accurate.

    • Due to converting to “green” bio-fuels per comrade’s mandates. I thought that COVID TM was Trump’s fault, how come supply under Trump was not affected?

  9. Off-topic: regarding dinosaur blood, what is the real evidence that oil is indeed from fossilized reptiles and not from some of not yet understood earth process? Suspicious re-filling of thought to be exhausted oil fields in few dozen years, for example in the Caspian Sea basin, raise a lot of questions.

    • perplexed: With nearly 4 billion years of carbon-based life/death on our doomed rock, isn’t that enough to have left us with enough fossil fuel (coal, oil, etc.) to account for everything that we’ve found so far?

    • I am not sure, seems too sketchy for me, You already expanded enormously, from just dinosaurs to entire biomass. Saying that oil is from dinosaurs requires non-refutable facts and falsifiable theory. And where “4 billion years of carbon-based life/death” got its carbon from? For atheists it must be from not alive Earth.
      This https://www.visualcapitalist.com/all-the-biomass-of-earth-in-one-graphic/ which is based on this #science https://www.pnas.org/doi/10.1073/pnas.1711842115#T1 says current living biomass is about 550 billion tons of mostly carbon. It should be a good fractional approximation of all bio-carbon that ever existed, times some moderate coefficient > 1 due to carbon recycling. It is a very small fraction of earth’s weight which about 6 x 10**21 tons. There is just under 1.5 billion vehicles on earth right now. One gallon of oil is about 2.5 kg carbon. Thus one vehicle uses several tons of supposedly “fossilized” carbon per year. Multiply this by factor of 10 for carbon used in electricity production. I think that dinosaur in the oil origin “theory” plays same role as in Jurassic Park movie – to sell tickets.

  10. Supply and Demand is an easy thing to say but can be much more difficult to visualize.

    If the demand for oil and its products is about the same or less then when Trump was President and if the supply is the about the same, then what has changed? What has changed is the people and the attitudes of the people producing and trading in oil and its products.

    First let’s look at domestic oil production. Who produces oil in the United States? There are several distinct groups, among them recognizable brands and companies like Exxon, Chevron, and Conoco Phillips, also dozens of small producers, companies, individuals and families with privately owned wells and significant numbers of new oil producers like well drillers and oil speculators who speculate.

    Non-US oil producers are much like domestic oil producers but also include countries like Saudi Arabia and Russia whose economies depend mainly on the sale of oil. From the perspective of the United States these foreign producers will always take up the slack. When they are not setting the price they will sell what they have to to keep food on the table, but when they are setting the price, naturally they try to drive prices as high as they can.

    When Trump took office he was very pro-oil. He restarted the Keystone pipeline, opened up vast areas for oil exploration both on land and offshore, encouraged fracking and the production of oil from oil shale. He put the country into a drill baby drill mode. The United States went from a net oil importer to an oil exporter. The big oil companies were eager to play, the availability of oil leases meant they could drill new wells and sell newly drilled oil. Wildcat oil companies and oil shale companies also came into fray. The price of oil fell into the forties per barrel. Gasoline prices reached a decades low.

    Enter Biden. Biden was anti-oil, he cancelled the Keystone pipeline, made domestic and offshore oil leases unavailable and hindered domestic production with over-regulation. Demand fell slightly but effectively remained the same and the foreign oil producers were eager to take up the slack. Domestic oil producers could produce more because they have proven reserves and existing wells that could be tapped for more oil, but why should they? Half as much oil at more than twice the price is better than twice the oil at half the price. Capitalism 101.

  11. Russia is rogue right now, but Saudi Arabia usually tries to moderate wild swings in crude price. As the Russia/Ukraine war stabilizes and Russia shops it’s crude to sympathetic regimes, the market panic should ease and more historic influences take hold. Where I am (Florida), gasoline pump price has eased about 30 cents off the peak, and the summer demand is also easing. My guess is prices will meander downward but not to 2019 levels because general monetary inflation and who knows?
    tl;dr: Price goes up and down, right now its going down.

  12. why are gasoline prices higher than in 2019? Because Dementia Joe campaigned on eliminating fossil fuels. Then he was elected and started to do just that.

    • President Obama did say he thought high gas prices would be a good thing. Why doesn’t President Biden remind us why it’s good?

    • @Sam: It’s good when American drivers spend roughly as much per kilometer for fuel as people in Germany do.

  14. I live in Southern California. I have noticed since Covid a marked decrease in the number of oil wells that are active. Many marginal areas turned into housing developments, the ones that are left seem to be operating well below where they were a couple of years ago. For example only one donkey running slowly whereas a few years ago, several donkeys would be pumping steadily. I don’t have 2022 numbers but 2021 had more oil consumed, but a marked decrease in california oil. source.
    So less domestic supply in California when global oil is in high demand may be another factor (on top of taxes and regulation) for higher high prices in California than elsewhere.

  15. Oil, food, money and a variety staples trade at a clearing price. Notice the Fed balance sheet 2019-now and the huge jump. The many trillions printed and borrowed by the US government in the last couple of years created a lot of money chasing essentials pushing the clearing price up.
    https://www.statista.com/statistics/1121448/fed-balance-sheet-timeline/

    Not sure when we’ll wake up and ask why do we need a privileged group to create tons of money without contributing valuable input. People seem to be waking up and trying to create a stable and convenient exchange medium.

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