THEY SAY that what goes up must come down. Do you believe it? I didn't till recently, with the precipitous decline in the price of gas.
Commuters are used to everything going up--traffic, travel times and the costs associated with all the different forms of transportation. So the drop in gas prices came as a pleasant surprise to all of us.
Now that we're off that stomach-churning roller coaster, many of you are probably wondering why we went on this ride in the first place.
For decades, the price at the pump hovered around $1 a gallon, in defiance of the usual law that prices ratchet up over time. Then several tumultuous events took place--namely, the 9/11 terrorist attacks, Iraq and Katrina.
In September 2001, the average nationwide price of a gallon of gas was $1.44. The price steadily rose over the next several years until 2005, increasing at a nearly steady rate from the invasion of Iraq in March of 2003 ($1.66) to Hurricane Katrina in August of 2005 ($2.53).
As a result of Katrina, the domestic oil supply was seriously disrupted--we lost a quarter of our domestic crude oil production and 10 percent to 15 percent of our refining capacity overnight. Major Gulf oil pipelines were shut down, further complicating supply to the coasts.
Besides disruptions in the domestic supply, several other factors contributed to the massive increase. There were disruptions in the worldwide supply and increasing demand from developing countries such as India and China. These factors combined to produce the unprecedented and dizzying nationwide price of $4.11 in July of this year (information from the Energy Information Administration).
Then the bubble burst.
The cost of crude oil is the single largest factor in the price of gas at the pump, accounting for about half the cost. Taxes and refining each accounts for another 20 percent, with the remainder being retail profit and distribution costs. Contrary to popular opinion, the oil companies have not been taking advantage of events
But like the real-estate market, the oil speculators got ahead of themselves and overvalued the worth of a barrel of crude. Since July, the price of light sweet crude has fallen by about two-thirds, resulting in the single biggest decline in history, about $2 a gallon in the last two months alone.
That's great news for commuters, as gas prices have dropped to their lowest level in about three years.
But the question on all our minds is--will it last?
Domestic production, refining and distribution have gradually come back since Katrina, but who knows what will happen under the new administration? Something tells me we will do little to improve our domestic production over the next four years.
The demand from developing nations is unlikely
OPEC will be meeting in December and is likely to set new quotas, but so far its attempts at stopping the price of crude from plunging have been ineffective.
All I know for sure is this: The experts are likely to be wrong. Several months ago, most prognosticators were giving us dire warnings that the price of gas was likely to spiral out of control for the foreseeable future. Now some are saying that low prices are here to stay through at least early 2009.
The combination of factors that led to the huge bubble in 2005-08 seems to have been a fluke. We'll see.
You may be interested in knowing that here in Virginia we're actually in pretty good shape. We're just outside the region where more expensive reformulated gas blends are required for environmental reasons. In terms of state taxes, we're well below the national average of 21.4 cents per gallon. Virginia ranks 10th nationwide, at 17.5 cents per gallon; by contrast, Washington sits at 20 cents per gallon and Maryland at
Will gas prices stay low? Who knows? People are paid lots of money to predict these things, and they usually get it wrong.
We ought to take a lesson from recent experience and keep getting off the roads, consolidating trips, and jamming ourselves onto the overpriced trains. We don't need to do anything crazy, but it would be good for our wallets and waistlines to walk a little more and shop
I'm not going to trade in our SUV for a horse-drawn buggy, but next time I buy
Christopher Tripp of Spotsylvania County commutes to Rockville, Md. Write him c/o Commuter Crossroads, The Free Lance-Star, 616 Amelia St., Fredericksburg, Va. 22401. Or e-mail
Email: newsroom@freelancestar.com.