The price of gasoline has jumped over $.30 per gallon in the last month. Figure 1 shows the weekly price of gasoline in the United States. Note that we are enduring an almost vertical price spike.
Figure 1. Weekly Price of U.S. Gasoline - Credit: Energy Information Administration
To allay any fears that refiners are responsible for the change of gasoline prices, observe Figure 2. The current price at the pump is tracking the cost of crude petroleum almost perfectly.
Figure 2. Spot price of Petroleum - Credit: Energy Information Administration
The trend lines are worrying. We could very easily slip into an oil shock similar to spring 2008 where the price of gasoline rapidly escalates beyond $4.00 a gallon. (I assert the oil shock caused the economic winter, not Bernie Madoff.) Note that aside from the oil shock, we have already returned to historically high price levels, even though we are far from an economic recovery.
The data appears worrying to others, New Oil Shock is "Inevitable" predicts as early as 2010 with an moderate economic recovery and 2013 with a slower recovery. Crude Oil Trades Near $71, explains we have had 4 consecutive weeks of increasing petroleum prices even though U.S. petroleum demand fell 6 percent from a year ago.
One other chart to show - Figure 3. The sellers of petroleum are profiting nicely from historically high petroleum prices. Obviously, the data is incomplete - the price of petroleum could suddenly plateau and remain constant. The trend lines though, of Figure 2 suggest November 2009 for another oil shock, not later in 2010.
Figure 3. OPEC Oil Revenues - Credit: Energy Information Administration
So what do we do? I am by nature an anti-tax person, but the elasticity of petroleum suggests that we should pocket the extra $.50 to $1.00 in taxes instead of sending the money overseas by permitting OPEC to completely set the price of petroleum. If you recall, Thomas Friedman proposed - Win, Win, Win last December. (By the way, gas prices were $1.67 on December 27, 2008.)
I concede though, this medicine has side effects that would alarm the Food and Drug Administration (FDA). We need some good solutions.
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