The cost of oil (barrel) today vs. 1981

[banquo's_bumble_puppy]

It was $35.00 US in 1981. The inflation calculator at Bank of Canada calculates $35.00 (1981) Canadian to be $74.36 (2005). I did a conversion for US dollars and it was pretty close.

[montebianco]

It was $35.00 US in 1981. The inflation calculator at Bank of Canada calculates $35.00 (1981) Canadian to be $74.36 (2005). I did a conversion for US dollars and it was pretty close.

Is this the price for a barrel of oil?

[mike alexander]

And adjusting for inflation I should now weigh 290 pounds, but should only be 35 years old. :-?

Whenever people start trotting out things like 'adjusting for inflation', you can bet they are trying to shave you without the soap.

[montebianco]

And adjusting for inflation I should now weigh 290 pounds, but should only be 35 years old. :-?

Sorry to hear that, I think...

Whenever people start trotting out things like 'adjusting for inflation', you can bet they are trying to shave you without the soap.

Well, I certainly think that if one is prone to make intertemporal comparisons, adjusting for inflation is better than not doing so, but there is not a single inflation rate, those usually quoted are typically the rate of inflation on a basket of goods constructed by a government as being broadly representative of what people consume. There is no particular reason the price of everything should go up at the same rate...if after inflation adjustment, the price of oil is higher(lower) than it used to be, that just means its price has risen faster(slower) than the prices of the goods in the basket used to construct the inflation index.

[mike alexander]

but there is not a single inflation rate

My point exactly. When that number is given in isolation (and I've never heard it otherwise) it means sloppy thinking or hiding something. It would make a bit more sense if compared to incomes adjusted for inflation.

[NEOWatcher]

It was $35.00 US in 1981. The inflation calculator at Bank of Canada calculates $35.00 (1981) Canadian to be $74.36 (2005). I did a conversion for US dollars and it was pretty close.

So what's your point. I'd like to hear it in context.
I can't exactly remember, but didn't gas fluctuate wildly about that time also?
And about a year or two ago, I remember OPEC wanting to raise the cost per barrel to $27, and gas was about the same price as the early 80s.

(Back then, we had one dealership claiming gas will hit $2 per gallon by the end of the year, and if it doesn't, he'll pay for your gas for a year in your new Honda)

I don't see a direct correlation between oil prices and gas prices and inflation. There's just too many fluctuations at the various production points between the well and the pump to make a simple statement.

Are the oil companies run by Ferengis?

[Taks]

there's a correlation between gas prices and oil prices, but it is not direct. well, at least, oil is not the only factor that drives gas prices. oil is a future, traded on the open market, so its "price" does not follow typical inflation models. gas is a commodity of sorts, so it suffers from the same problem. it also suffers from wildly varying demand and the ability of oil companies to turn oil into gas. hopefully, soon, we will not be dependent upon oil and we'll stop fighting over middle east resources... ahhh, utopia! :)

taks

[montebianco]

there's a correlation between gas prices and oil prices, but it is not direct. well, at least, oil is not the only factor that drives gas prices. oil is a future, traded on the open market, so its "price" does not follow typical inflation models. gas is a commodity of sorts, so it suffers from the same problem. it also suffers from wildly varying demand and the ability of oil companies to turn oil into gas. hopefully, soon, we will not be dependent upon oil and we'll stop fighting over middle east resources... ahhh, utopia! :)

Well, definitely fighting over middle eastern resources will stop when the resources are gone, if not before :D But on gas prices, a few years ago in the US, different environmental standards in different parts of the country meant that gasoline shipments could not be diverted from places with excess supply to places with excess demand. The result was a large difference in the price of gasoline in different parts of the countries. There were all the usual cries for investigation, prosecution, etc., because this was all obviously the result of a conspiracy by the greedy oil companies, who I guess must have been in a generous mood when oil was at $11 a barrel. But the market-based explanation was obviously too far-fetched for a lot of people...

[Roy Batty]

You know, here in Britain we get our 'gas' directly from the North sea :D 8)

[montebianco]

You know, here in Britain we get our 'gas' directly from the North sea :D 8)

OK, previous post was mainly about petrol :D And then in Germany, they call it Benzin, which means something totally different where I live...

[mike alexander]

OK, so I've just mooched around Google for a bit and here's what I come up with (with the caveat that ANY single number measuring a complex susyen introduces a lot of simplification from reality). My values are from the US Energy Information Administration or the Bureau of the Census.

1981: mean price of gasoline peaked at $1.35/gal.

2005: mean price now about $2.50/gal

Consumer Price Index adjustment 1981>2005 is about X2.1, so the 1981 price, adjusted using the CPI would be $2.84/gal, which would be 'higher' than today.

In 1979, gas was running (CPI-adusted) about $1.25. Then there was the oil embargo and the price more than doubled. But the price bubble was over by 1986, and the CPI adjusted price dropped and stayed essentially flat for the next decade or more at about $1.15/gal.

So while there was that bubble in the early 80's, the more appropriate price would be much lower, about half the current adjusted cost. And since you buy gas continuously over time, telling people 'it's cheaper than 1981' doesn't tell them 'but it's twice what it was in 1986...or 1998 for that matter'. Using an outlier to make your case is weak. If not disingenuous.

More context. In 1981 the average family incomes for three groups (from US census) were

lowest 20% $9,003
60 to 80% $24,400
top 5% $58,000

In 2003 (latest numbers I've found), the same incomes, also using the CPI adjustment, are

lowest 20% $9,358 (104%)
60 to 80% $27,483 (113%)
top 5% $76,735 (132%)

Where the number in parentheses is the increase in income after adjusting for the CPI. As you can see, even using the government CPI value, income for the poorest 20% of the population has stayed essentially flat over the last 25 years, while that of the top 5% has increased by about a third (I didn't use the top 1% because that would skew it much higher).

So, the increased price of gas over historical time isn't going to hurt you much if you are in the top tiers (mainly because you have more eal income, not to mention more disposable income). But if you are poor, your real income hasn't changed much, while the price of gas has about doubled, so the increased cost will be a real pinch.

Of course, if you are poor, you should be walking, anyway.
:-?

[Taks]

so let me get this straight, as a percentage of income, gas is about the same now as it always has been, yet somehow the poor are suffering more now than before in spite of income progression greater than the CPI?

you no make sense.

taks

[genebujold]

And adjusting for inflation I should now weigh 290 pounds, but should only be 35 years old. :-?

Whenever people start trotting out things like 'adjusting for inflation', you can bet they are trying to shave you without the soap.

Sorry, but Finance is my specialty...

Adjusting for inflation (ie, putting time-differentiated events in constant dollars) is the only reliable way to compare costs ocurring at different times.

Yes, deciding on an appropriate index can be problematic, but smarter folks than I (economists) do an outstanding job of just that.

The only issue they really have to contend with is that over time, different inputs to the various indices can take on or loose value disproportionately to the inputs as a whole. This must be recognized, understood, and accounted for.

Fortunately, smarter folks that I...

[mike alexander]

taks, genej, look over what I said again.

Using the CPI-adjusted price for gasoline for the absolutely worst year of a five-year price bubble and comparing it to today's prices gives a false sense of what costs have been over time. (That's the context of my shaving comment, not that adjustment is wrong)

Instead of using that 1981 one-year $2.85 CPI-adjusted value, why not use the $1.20 CPI-adjusted average value for 1986-1998? Isn't that a better indicator over time of price? Even factoring in the bubble, I feel confident that the price in the 1981-1998 time region can't be more than an adjusted $1.50. Would you agree that a time-factored average is a better indicator of price than the single outlier?

So as a percentage of income, if gasoline is CPI-adjusted about 60% higher than it was in the 1981-1998 time range ($1.50>$2.50), but the poorest 20% have seen a rise in income of 4% in real terms ($9,003>$9,358) over the same period I'd say yes, the poorest are suffering more.

[Taks]

So as a percentage of income, if gasoline is CPI-adjusted about 60% higher than it was in the 1981-1998 time range ($1.50>$2.50), but the poorest 20% have seen a rise in income of 4% in real terms ($9,003>$9,358) over the same period I'd say yes, the poorest are suffering more.
it makes sense to compare today to 1979, or 1980 or 1981 or even 1998, but not to compare a single value (today) to an average of values over a time that does not even include today. particularly when you don't qualify what relative incomes were doing during that average period.

taks

[Taks]

the point of the comparison is really relative to the specific time... in 1979 it was bad, but not as bas as now. in 1980 it was worse, but not quite as bad as now. 1981, it was much worse than it is now, etc...
taks

[genebujold]

Instead of using that 1981 one-year $2.85 CPI-adjusted value, why not use the $1.20 CPI-adjusted average value for 1986-1998? Isn't that a better indicator over time of price? Even factoring in the bubble, I feel confident that the price in the 1981-1998 time region can't be more than an adjusted $1.50. Would you agree that a time-factored average is a better indicator of price than the single outlier?

Absolutely! I wasn't aware they tried to do that. You can never use the CPI in any given year by itself. You must use the ratio of two CPIs between the two years you're looking at. Even then, you must factor in how oil prices during that year fluctuated from the norm, if you're trying to establish what should be a reasonable price for oil these days.

[Donnie B.]

Maybe this discussion is being fueled by different assumptions about the point each participant has been trying to make.

If your point is that "the price of gas now isn't as high (in inflation-adjusted terms) as it was at its highest peak", you're right.

If your point is that "the price of gas now is much higher than it's been, on average, over the last 20 years (adjusting for inflation)", you're also right.

If you're trying to argue that one of the above points is relevant and the other isn't, I'd say you're wrong. :P

[montebianco]

Maybe this discussion is being fueled by different assumptions about the point each participant has been trying to make.

If your point is that "the price of gas now isn't as high (in inflation-adjusted terms) as it was at its highest peak", you're right.

If your point is that "the price of gas now is much higher than it's been, on average, over the last 20 years (adjusting for inflation)", you're also right.

If you're trying to argue that one of the above points is relevant and the other isn't, I'd say you're wrong. :P

Very good. This thread was badly in need of a post like this :D

[mike alexander]

Some posts have occured since I wrote the material below. And the points are good. But since I went to the trouble, here are some numbers;
___________________________

I went to the US Census site and took the average family income for the lowest 20% of the population from 1975 to 2005 (estimates for 2004, 2005). Then I went to the Bureau of Labor Statistics and applied their CPI calculator to correct all income values to the 2005 equivalent.

I went to the California government site and took their inflation adjusted prices for gasoline (I could not find a country-wide set of data, but California should reflect relative changes fairly well).

Then I took both sets of numbers and normalized them to that 1975 = 1

Compared to 1975, the inflation-adjusted family income in 2005 is just a hair under 1. Essentially no change. It dipped to 0.95 in the early 1980's and rose to about 1.11 in 2000, and has been falling ever since, so over thirty years, the buying power of the lowest 20% in income has remained constant.

Gasoline prices, starting from 1 in 1975, spiked up to 1.48 in 1980-81. By 1983 they were back to 1.11,and by 1986 they were down to 0.80. From there until 1998 they bobbled around in the range 0.80-0.90. In 1999 they started rising again, and for each subsequent year except 2002 they have gone higher (2001=1.04, 2002=0.94, 2003=1.12, 2004=1.27, 2005= 1.38 ). Obviously, the 2005 value is still in transition.

So, for the last five years, using these figures, gasoline prices have been rising while poorer family incomes have been falling.

_________________________

In any event, income for the lowest quintile of families, after using the government's own numbers and inflation calculator, has been stagnant for thirty years. The price of gasoline has increased about 50%, in real terms, in the last five years, as compared to the decade before that.

[Taks]

the latter, er, both, yes, i agree... what he said. er what she said? uh... ok, i'll be quiet now.

taks

[mike alexander]

Aw, don't do that, taks.

It's obvious that my first explanation was unclear, and I hate when I do that. :oops:

My real beef, though, is with most of the media. From a standing start, an internet link, Google and a spreadsheet, I could, in less than an hour, find enough data to make a decent picture of the current situation in a historical perspective. Put bounds on it, anyhow.

And that made me angry. Comparing prices to the worst case would be like asking me how I feel today. Compared to about ten years ago, when I was flat on my back for a week with double pneumonia, I feel great. Compared to thirty five years ago, when I could run three miles on the flat and then up 13 flights of stairs to my room, I feel terrible. But I submit that the gradual decline in my athletic prowess over the last few decades is a more accurate reflection of me than that bout with pneumonia.

Saying that gas prices are not as bad as the worst they have ever been is, at best, pretty poor-mouth, if you ask me. Like single pneumonia. Not as bad as it could be, but nothing to crow about.

[Lord Jubjub]

Wasn't there a quote (attributed to either Mark Twain or Mark Twain quoting Benjamin Disreali):

"There are lies, damn lies and statistics"

[montebianco]

Wasn't there a quote (attributed to either Mark Twain or Mark Twain quoting Benjamin Disreali):

"There are lies, damn lies and statistics"

Statistics don't lie, people lie.

[NEOWatcher]

SNIP
My real beef, though, is with most of the media.
SNIP
Saying that gas prices are not as bad as the worst they have ever been is, at best, pretty poor-mouth, if you ask me. Like single pneumonia. Not as bad as it could be, but nothing to crow about.
In our paper the article related what the gas prices are in relation not only to 1981, but to 1919 !! and 1929 !!
Not only are you talking about economic situations being somewhat different (and worst case), you are talking about demand and production differences. Mainly, the general public was not enslaved to gasoline, and the ratio of crude to gasoline was much higher.

[mike alexander]

1919? Really? What paper was that, the Plain Dealer?

Did they also compare the adjusted price of horse feed?

[NEOWatcher]

1919? Really? What paper was that, the Plain Dealer?

Did they also compare the adjusted price of horse feed?

Right paper, wrong commodity. They like eggs (http://www.cleveland.com/newsflash/cleveland/index.ssf?/base/business-5/112471737347790.xml&storylist=cleveland)... :P

[Doe, John]

So what I get out of this is that the supply for poor people has pretty much stayed constant with the demand; while the demand for gas/petrol has pretty much outstripped supply. :)

[sarongsong]

Probably should go under Funny websites (http://www.bautforum.com/showthread.php?t=34199), nevertheless:
November 3, 2005 (http://www.upi.com/NewsTrack/view.php?StoryID=20051103-110946-6486r)
"...Senate Republicans who want oil companies...to devote a portion of their nearly $100 billion profits in the latest quarter to families who could see a 50-percent hike in heating bills this winter..."

[Sammy]

Probably should go under Funny websites (http://www.bautforum.com/showthread.php?t=34199), nevertheless:
November 3, 2005 (http://www.upi.com/NewsTrack/view.php?StoryID=20051103-110946-6486r)
"...Senate Republicans who want oil companies...to devote a portion of their nearly $100 billion profits in the latest quarter to families who could see a 50-percent hike in heating bills this winter..."

I recommend that no one hold their breath waiting for this to happen....

[sarongsong]

Well, at least we can watch them 'splain it to us next week on C-SPAN:
November 2, 2005 (http://www.ktvu.com/money/5230278/detail.html)
"Top executives of three major oil companies will be asked by senators next week why..."

[suntrack2]

i think now the world has to move or think about to start the use of the non conventional energy sources right now otherwise the problem of fuel scarcity may be face, and in that concern that everyone has to re think the best sources of getting to much resources in maintaining the status quo ante for the energy meetings. i am observing since last 10 to 15 years, that when ever the oil prices riser there is no such great down fall in the prices per barrel, in the kiensian economic theory there is one law that is called as law of demand and law of supply, here in today's world the demand is much more and supply is constant in this connection and especially in the inflation process the rates are going higher, secondly if we grow the proportion of supply then only we can see the use of the oil fuel is risen, but the prices are not cut, if we want to cut the prices on a large scale then in this connection we have to think about the non conventional energy sources for the use, so that the fuel oil proportion will increase and in that sense the law of demand will get a marginal satisfaction in the shorter supply and then only we would be able to see that there will be a great downfall in the cost per barrel, what do you think?

sunil

[jkmccrann]

One other thing to consider with regards to the rising price of oil, and its current price relative to its price of 25 years ago, or indeed from any other period in the past, is the degree to which we're dependent on oil in terms of our economic growth.

I'm no expert in this area, but I believe that over the past 25 years, in the industrialised world, the effect of oil (as an input) on growth has dropped in half, in effect meaning that for the (real) price of oil to have the same effect on growth these days it would have to be 200% of the price it was 25 years ago. In effect, that only when a barrel of oil reaches around $200 in today's prices can we say that the oil `shock' we're experiencing today is as severe as that of 1980/81.

Looked at in that context (and of course, when one looks at individual sectors of the economy that is a spurious argument to draw, but I'm talking about the economy overall which has a much larger emphasis on services these days, intellectual property et al more so than industrial areas), then there is an awfully long way to go before we can really whinge about high oil peices.

BTW I have no idea what a $200 spot price for WTI would do to the price at the pump, but that would hurt.


I think now the world has to move or think about to start the use of the non conventional energy sources right now otherwise the problem of fuel scarcity may be face, and in that concern that everyone has to re think the best sources of getting to much resources in maintaining the status quo ante for the energy meetings. i am observing since last 10 to 15 years, that when ever the oil prices riser there is no such great down fall in the prices per barrel, in the kiensian economic theory there is one law that is called as law of demand and law of supply, here in today's world the demand is much more and supply is constant in this connection and especially in the inflation process the rates are going higher, secondly if we grow the proportion of supply then only we can see the use of the oil fuel is risen, but the prices are not cut, if we want to cut the prices on a large scale then in this connection we have to think about the non conventional energy sources for the use, so that the fuel oil proportion will increase and in that sense the law of demand will get a marginal satisfaction in the shorter supply and then only we would be able to see that there will be a great downfall in the cost per barrel, what do you think?

sunil

I pretty much completely disagree that we should be worried about the rising price of oil. Its economics in action as far as I can see. As the price rises, other options become more viable and more money will be put into them to develop alternatives.

There is one thing though, alternatives to oil are not going to be developed overnight, but then, we have enough oil supplies to last a couple of hundred years! So I don't believe we're headed for catastrophe anytime soon. As the price of oil trends upwards, which it won't always do - but it should trend that way as India & China come further online, there will be alternatives.

There are a couple of things I would add. The price of oil is not the only thing that will drive the move to alternatives. Geo-politics for the West demands it, and that will always be a factor.

Also, in terms of the price of oil, I believe that its true price is not really reflected in terms of its direct environmental effects, and I'm not really referring to global warming as such. Air pollution, landfill(plastics et al), subsidence etc., destruction of forests etc., things like that, I don't believe that these costs are fully factored into the price of oil.

Just to take an example, Louisiana (and I know there are other factors at work here and most importantly the levee system that takes the Mississippi silt into the Gulf of Mexico instead of spreading it aroud the wetlands). But, its an established point that some degree of subsidence in Louisiana has occured due to the extraction of oil in Southern Louisiana. Whether that is a good thing or doesn't matter I'm not well placed to judge, but I would merely ask, has this matter been investigated to the extent that whatever environmental effects this oil extraction has had have been accounted for in the cost of that oil? Somehow I doubt it has.

cheers

[sarongsong]

Wednesday, November 9 (http://www.c-span.org/)
"Senate Hearing on Energy Prices with Oil & Energy Company CEOs
On C-SPAN3 at 9:30am ET"

[sarongsong]

Doesn't appear they're going to help low-incomers with their heating bills this winter. One viewer of Lou Dobbs TV program on the subject e-mailed in with a zinger:
"Asking the oil execs about high prices/profits is like asking the fox, "Who killed the chicken?"
Talk now is of some sort of 'Excess Profits Tax'---we'll see.