I've been watching the recent run-up in gas and diesel prices, and comparing them to the recent run-up in oil prices per barrel, and to me, the numbers don't quite add up.
So, I decided to make a quick spreadsheet to confirm my suspicions. Nothing complicated -- I just took some readings of the oil price, average gas price at the pump and average diesel price at the pump. I did this for winter, spring, summer and fall (January, April, July & October) of 2007 and 2008, and then again for January and May of this year.
For example, in January 2006, the average price of gas (U.S.) was $2.35/gal. The average price of diesel (in Oregon) was $2.41 a gallon. The oil price per barrel was $62.50. This resulted in a ratio of 0.00376:1 for gas, and 0.00386:1 for diesel; that is, the price of a retail gallon of gasoline (including taxes) was 3.76% of the price of a barrel of oil, or 3.86% for a gallon of diesel.
Simple stuff.
In July of 2007, just to give another example, gas was $3.00/gallon (4.14% of a barrel of oil), and diesel was $2.83/gallon (3.90% of a barrel of oil).
Now, however...
In May of 2008, gas is about $3.80/gallon (nationwide U.S. average, your pump price may be considerably higher), and diesel is at an average price of $4.15 (though obviously, it's selling for higher in many places).
That's about 2.86% of the price of a barrel of oil (which just hit $133 yesterday) for gas, and 3.12% for diesel.
The average ratio from January 2006 through January 2008 was 3.80% for gas, 3.97% for diesel.
If we just multiply these numbers by the current price of a barrel of oil, we see that...
Gas SHOULD be selling for $5.05 a gallon, and diesel SHOULD be selling for $5.28 a gallon.
Let me repeat that...
RESULTS:
GAS: $5.05/gallon
DIESEL: $5.28/gallon
(Based on what prices SHOULD be, according to historical average ratios of gas & diesel pump prices to the price per barrel of oil over the past two years)
For whatever reason, as far as I know, we haven't seen these average prices anywhere in the country, not even in downtown San Francisco (sure, a couple of stations have already passed the $5 a gallon mark, but not the city as a whole). And that's the most expensive major market in the country, by most measures, when it comes to retail gas prices.
You can quibble with my methodology. This is not a Ph.D. thesis. It's just a back-of-the-envelope calculation.
My prediction? Unless oil prices come down rapidly and steeply, we're going to see pump prices rocket past $5/gallon for both gas and diesel. The only question is when. Next week (after Memorial Day)? Next month? I don't see how the currently-low prices are sustainable.
Sources:
Oil Prices per Barrel
Gasoline Prices at the Pump
Diesel Prices at the Pump through Feb. 2006
Current Diesel Price
Finally, here's the spreadsheet:
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