Much Ado About Gas Prices

markmcb writes "It seems that a week cannot pass without finding big news about gas prices. They're up, they're down ... but why do we care so much? OmniNerd posted an article that aims to put gas prices in perspective. The author takes a look at other commodities and their price variances and applies some simple math in order to make the claim that best-gas-price-hunting is an effort that could be better used on other products. From the article, 'Why the disproportionate emphasis on gas prices in our culture, then? Although some cite a failure of politicians or media populists to account for inflation and purchasing power changes, I think it is simply because gas prices are in your face.'" IMO, the other side to the price of gas is that, especially in developed countries, it has a pervasive effect throughout all layers of the economy — food prices (because of the trucking), schools (busing), etc., etc.

High Inelasticity of Demand

[michaelepley]

The other main reason for the focus on gas prices: the short-term demand is not affected substantially by changes in price. Thus, these changes must simply be absorbed until technology or capital investments can catch up with the changes. Price volitility further compounds the problem because of the high capital costs of changing behaviors to converse gas, meaning those investments are unlikely to be made unless the price variations are percevied as indicitive of lenger term trends.

It's not just gas-at-the-pump prices

[autophile]

It's not just mommy and daddy filling up the family sedan. It's everything that depends on petroleum products. Asphalt, for example. Heating oil. Plastics. And, as the summary points out, transportation of *everything*.

Gas prices is one of those easily understood metrics that happens to affect everything we do (in developed countries).

--Rob

Re:To really put things in perspective..

[bhima]

I do and I do so happily.

OmniNerd, how appropo

[Anonymous Coward]

Please, someone actually went thru all this trouble, and their conclusion is that gas prices are in your face and the larger price signs makes the avg person _think_ it's more expensive. I mean come on, there are some obvious differences in _how_ one purchases gas vs other items. The most obvious is quantity, you will typically purchase 8-20 gallons of gas per fillup, so even small differences can add up. If you were purchasing 50 apples, you'd be much more price sensitive than if you were buying 2. Then you factor in that while product A may be much cheaper at store B, you typically will want to make a single trip and so the savings is then averaged in with your other purchases. When you go get gas, you are mostly just getting gas, so there aren't other price factors. Then one of the most obvious issues is simply that gas is significantly more expensive now than it was a year or two ago, it's that sudden increase and high volatility that makes it more obvious. And lastly is the issue of options, it is the rare grocery item that doesn't have myriad substitutes or that can't be lived without if need be, however, with gas, you are pretty much stuck. You have to either spend a lot of money (purchase more fuel eff. vehicle, hybrid, etc) or make major lifestyle changes (use public transport, ride a bike) or both to work around purchasing gasoline. Typically the variances in gas prices is not that great within a given area, so it basically is what it is.

Re:Eh hem, size matters.

[emamousette]

Modern diesel cars (on average) tend to get slightly better mileage per gallon of fuel. That would be more of a cost savings over gasoline fueled cars as well.

Re:Exxon Mobile

[Anonymous Coward]

Beware: Economics follows.

The demand for gasoline is relatively inelastic. If you raise the price, demand does not fall all that much. So, raising the price often means you would make more money. It's a typical monopoly tactic to restrict the supply of something and artifically raise the price against an inelastic demand, and thus gain more revenue. (See also: Windows.)

If anything, the higher profits associated with this price of gas after the hurricane (when supplies are lowered by other forces) should demonstrate that under normal conditions, the industry is actually fairly competitive, and you're paying a relatively fair price for your gasoline. (Well. Aside from taxes.)

Re:Eh hem, size matters.

[GundamFan]

The trick with small block diesel engines is that they get a much better MPG rating on average so even if diesel fuel is more exspensive than gas per gallon you still come out ahead, plus most new diesel cars (VW Auto Group TDIs anyway) are being built to run on bio-diesel without any conversion.

Re:Exxon Mobile

[gorbachev]

"Am I the only person wondering what is going on here?"

No, you're not.

The US Government gave oil companies a multi-billion dollar subsidy just after the Katrina hurricane. The oil company lobbyists claimed the hurricane had had a disastrous affect on the oil companies. The next quarter the oil companies, all of them, announced record profits. Profits that were bigger than any other company in the history had ever made in a quarter.

Re:Eh hem, size matters.

[Pope]

Not slightly, diesels get better mileage per litre/gallon, period. Of course, diesel fuel having more energy per volume of fuel also helps...

Re:Eh hem, size matters.

[ajs318]

One litre of diesel fuel contains more joules of energy than one litre of petrol (gasoline). However, in order to burn it fully and so release all that energy, it requires more air. Diesel engines therefore have larger displacements than equivalently-powered petrol engines; a runabout that ordinarily has a 1.2 petrol engine might have a 1.6 or even 1.8 in its diesel counterpart.

Although the extra cubes make it sound as though a diesel engine ought to use more fuel, this is not the case since the fuel-air ratio is adjusted correspondingly. A diesel engine draws only air (not fuel-air mixture) into the cylinder and compresses this. A charge of fuel is injected into the cylinder, where the heat from the compressed air ignites it.

Diesels also used to be more expensive because they need five gears (diesel engines have a more sharply-defined peak in the power/speed graph). But all cars have five gears nowadays; I've even seen six on some performance cars.

Re:Eh hem, size matters.

[Alioth]

Thermodynamically less efficient? I beg to differ. Diesels have always been more thermodynamically efficient than petrol (gasoline) engines - even more so now with the most recent engines with refinements like common rail fuel injection.

Re:Eh hem, size matters.

[DaEMoN128]

Mercedes bluetec will be in cali next year. The 2008 commonrail tdi will be there in 08, no tdi's for the 07 model year because the particulate filters are damaged by 500ppm sulfer diesel. We wont have full change over to 15ppm diesel until 2007, so vw is playing it safe. The commonrail tdi is supposed to be 50 state legal.

Comment removed

[account_deleted]

Comment removed based on user account deletion

Re:Eh hem, size matters.

[Dun Malg]

Car companies do not yet know how to produce diesel cars that pass emission standards in all 50 states.

No, that's wrong. Building a clean burning diesel is actually fairly easy. The problem is that diesel fuel in the US is high in sulfur (though that will change in the next couple years). High sulfur fuel buggers the catalytic coverter in clean diesels. Europe mandated low-sulfur diesel years ago; that's why you only really see "clean" diesel vehicles from Euro manufacturers right now.

Re:Eh hem, size matters.

[tylernt]

It's easy to do a cost-benefit analysis, calculating the number of miles you drive and finding out how much you save per year with diesel's better fuel economy in spite of its slightly higher fuel price. Then you compare that with the extra money you will spend on a diesel car, to see when you will break even and when you will start saving money with a diesel. I did it in an OpenOffice spreadsheet in about 10 minutes (and yes, my diesel is saving me money despite my low annual mileage).

All things taken into account, diesel is almost always cost effective for high mileage drivers. For the person who just needs a grocery-getter, diesel may be more expensive (unless you get an old diesel from the 80's to reduce your capital investment).

diesel peak power

[Mr 44]

Diesel angines actually have a much flatter torque curve than gas engines. The reason they have always had more gears is because their RPM range is more limited.

They didn't really need to change anything

[Squalish]

The only incompatibily is natural rubber fuel hoses (phased out 20 years ago for economic, not green reasons), which biodiesel tends to eat away.

In hot climates, B100 is pretty much a drop-in replacement, with one catch: it'll eat away built up corrosion from years of petrodiesel, causing your fuel filter to clog up initially.

Straight vegetable oil (SVO) works as a fuel, but needs to be at high temperature to have the necessary viscosity, and engines need to be modified with heaters. We fix that by transesterifying it with methanol and turning it into biodiesel. This still doesn't have the cold weather ease of use of petrodiesel, though.

The only major issue with pure biodiesel is that its gel point is in the neighborhood of 25-30F, resulting in fuel lines that clog. For people who will be operating in subfreezing weather for significant amounts of time, various additives are available, including basic petrodiesel (this is why B20 is so much more prevalent in the US than B100). For subfreezing weather over an entire season, an electric heater system is highly recommended - there are already products available tailored to extreme low temperature petrodiesel use.

Re:WTF are you talking up, up then down?

[bnenning]

Gas prices have gone nowhere but up since Bush took office.

I always hate to interrupt a good Bush-bashing session with facts, but take a look [randomuseless.info]. Gas prices fell quite a bit during the 80s, stayed relatively constant for a while (but note the sharp increase toward the end of the Clinton administration), fell during the first few years of the Bush administration (even after 9/11, which should have been a prime gouging opportunity), and only rose significantly after the Iraq war and last year's hurricanes. Also note that prices peaked right before the 2004 election, which is inconvenient for the "Big Oil manipulates prices so Republicans win" theory.

The President does not control gas prices. Or much of the economy at all, for that matter.