Consumers paid less for U.S. gasoline in 1994, in terms of inflation adjusted dollars, than they did during the entire 75-year history of recorded pump prices. The American Petroleum Institute reports prices last year averaged a little more than $1.17/gal for all grades of gasoline and all types of service. The figure is based on data compiled by the U.S. Bureau of Labor Statistics (BLS)(29007 bytes). Inflation adjusted prices dipped to a new low even though gasoline taxes rose, becoming the largest component of pump prices more than either the cost of crude oil or the costs of marketing and distributing the gasoline.
Price comparison
Unadjusted for inflation, gasoline prices have risen during the years, but less so than prices of all other goods and services on average. Gasoline prices remain relatively low due in part to intense competition in the oil industry, API said. Whats more, although prices of all goods and services rise over time because of inflation, the price of gasoline remains a bargain compared with other goods. BLS data show the average price of all U.S. goods and services rose 20% more than the price of gasoline during the past 27 years. For example, the price of a doctors visit rose 89% more than gasoline, dental services 61% more, and prescriptions 32% more. Breakfast cereal prices rose 64% more, apples 35% more, and coffee 38% more. In addition, because cars now get more miles to the gallon, todays gasoline carries motorists farther. The cost of gasoline in terms of 1994 cents per mile has dropped steadily during the past 14 years. That cost was 14.2 in 1980. It dropped to 6.6 in 1990, then to 5.4 in 1994.Effect of taxes
For the first time in more than 20 years, taxes became the single largest component in the cost of gasoline. In 1994, for every $1.17/gal spent on gasoline, 41.2 were tax, 37 were for the purchase of crude oil, and 39.2 were for manufacturing, distributing, and marketing. Included in the 41.2 in total taxes were 18.4 in federal tax, 20.8 in average state taxes, and an estimated 2 in local taxes. Some drivers pay much more than others, API pointed out. Last July, drivers in Connecticut were paying the nations highest state gasoline tax at 37.3/gal and a total tax of 55.7 on every gallon. Alaskans have the lowest state gasoline tax at 8/gal. Total taxes of 26.4/gal in Alaska are less than half of Connecticuts.Industry competition
Underscoring the competitive nature of the U.S. oil industry, API said no single oil company has captured more than 9% of the U.S. market. Moreover, retail gasoline outlets commonly post prices prominently so customers can shop for the best price without leaving their cars. API said companies are constantly looking for the competitive edge whether through offering better gasolines, more convenient locations, or faster service like pumps that read a customers credit card. In addition, because U.S. and non-U.S. companies are free to enter the U.S. market, American consumers receive the benefits of vigorous competition in all sectors of the industry from supply of crude oil to manufacturing of gasoline, and finally in the retail sale of that product.What boosted prices
API traced changes in gasoline prices to market conditions, government regulation, seasonal changes, and taxes. Over the long term, inflation adjusted prices dropped during the Great Depression and throughout the World War II era. They rose in the 1970s, then fell again in the mid-1980s, rising since then only briefly about the time of the Persian Gulf war in 1990-91.Inflation adjusted prices have trended lower during the past 16 years. In response to demand, gasoline prices typically bottom out in the winter, rise throughout the spring, peak in summer, and drop in the fall. Prices have followed that pattern this year. Januarys average price for all types of U.S. gasoline was $1.19/gal. Prices fell steadily through March to about $1.17/gal. Prices then began to climb from almost $1.20/gal in April to more than $1.26 in May and to $1.28 in June. Prices fell in July to $1.25/gal. As of July, the average price for all types of gasoline and all types of service during the first 7 months of the year was about $1.22/gal, or about 8 more than the average for the same 7 month period in 1994. API cited four factors as causes of most of the increase:
- Reformulated gasoline. Last Jan. 1 oil companies began selling the new federally required reformulated gasoline to about one fourth of the U.S. market. API explained that RFG is a cleaner burning fuel, more expensive to produce and distribute than conventional gasoline.
- The cost of crude oil. This cost to refiners rose about $2.60/bbl, or more than 6/gal of crude, during December 1994-May 1995. Last June, however, crude oil prices dropped about 6/gal. During the first 6 months of 1994 and the same period in 1995, the average cost of crude oil to refiners increased nearly $3/bbl, or almost 7/gal.
- Inflation. More than two fifths of the increase in gasoline prices, or 3.5 of the 8/gal increase, was due to inflation.
- Taxes. Although federal gasoline taxes remained unchanged, state and local taxes increased an average 1.5/gal nationwide during July 1994-July 1995.
