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Friday, June 20, 2008

Inflation Adjusted Gasoline Prices at Record Levels; China Raises Energy Prices

Gasoline prices have nearly doubled in less than a year. That is only half the story. This chart, courtesy of, shows oil and gasoline prices have more than tripled since January 2005!
This chart shows that the share prices for the major oil companies have risen right along with the price of energy.

Our pain at the pump has been their gain, which may explain the bad feelings towards the oil industry.

One reason oil prices have continued to go up despite higher prices that are supposed to lower demand is some countries like China set prices that force their refiners to sell gasoline at a loss. It works out as a government mandated subsidy for consumers and industry. Yesterday China raised fuel prices to curb demand.
  • June 20 (Bloomberg) -- China, the world's second-biggest oil-consuming nation, unexpectedly raised gasoline and diesel prices by at least 17 percent and increased power tariffs to rein in energy use, potentially driving up inflation.

    The record price increase, the first since November, may ease refining losses at China Petroleum & Chemical Corp. and PetroChina Co., who have been forced to sell fuels below cost. The companies' shares rose in Hong Kong trading.

This chart, courtesy of, shows oil and S&P500 prices.
This chart, courtesy of Chart of the Day, shows gasoline prices adjusted for inflation.

Of Note on the chart:
  1. After adjusting for inflation, gasoline prices are at record highs that are 18% above the old inflation-adjusted peak of 1981!
  2. Gasoline prices are above a trend channel (see red line) that has been in existence since early 2000.
  3. Large spikes in oil prices are often followed by recessions.
The days of cheap energy are probably gone but as major users of gasoline, such as China, allow prices consumers pay to go up, we should get some relief from the relentless price hikes for energy.

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