Filling Up With Answers to Your Pain at the Pump

By Michael D. Lemonick

Gas prices are in the news, as the average cost for a gallon of unleaded regular keeps rising toward $4. Politicians and the general public have been increasingly vocal in their demand that President Obama do something about it. Here’s what you need to know about gas prices, followed by an interactive graphic that tells you how gas is priced across the country, and how your state compares:

FIVE EASY PIECES

1. The President can’t do much of anything to lower gas prices in the short run. Anyone who says otherwise is blowing exhaust. The world market sets the price of gasoline. The President and Congress together could lower the federal gas tax — but since that’s a piddling 18.4 cents per gallon, it wouldn’t made a heck of a lot of difference. The President could also tap into the Strategic Petroleum Reserve — 700 million-ish barrels of oil stored in salt caverns against major interruptions in oil supplies or some other national emergency. Obama could tap it now to keep prices down but you can argue that this doesn’t qualify as either one.

Credit: bcbusinesshub/flickr

2. The President can’t do much of anything to lower gas prices in the long run, either. Expanding oil drilling into protected areas like the Arctic National Wildlife Refuge would add to world supplies, and the law of supply and demand means that could lower prices — but only a little. The much debated Keystone XL pipeline won’t make much of a dent, either. And given the time lag of several years between new exploration and the actual production of new oil, the actual benefits would not arrive until a time when world demand will be a lot greater. That’s because China and India are getting richer, and they’re putting cars on the road faster than oil supplies can keep up.

3. The President can, on the other hand, do plenty to drive oil prices through the roof. If we go to war with Iran, or even threaten to do so, all bets are off. Iran pumps out about 5% of the world’s oil in a given year, but a war could shut down shipping lanes in the Strait of Hormuz, through which a whopping 25% of the planet’s crude travels.

4. Gas prices aren’t actually as high as they look. Sure, a gallon cost just 30 cents in 1964, the year the Ford Mustang made its debut but when you adjust for inflation, that’s $2.23 — well below today’s prices, of course, but still not quite as insane as it sounds. And in 1934, the numbers were $.19 (actual) and $3.20 (adjusted). In 1998, by contrast, thanks in part to higher mileage standards and the reduced demand that resulted from them, gas was an inflation-adjusted $1.40 per gallon. There’s a lesson in there somewhere . . . 

5. Gas prices will probably go down again. Over the short run — a period of several years — any number of things could drive prices down again. One is a major recession. Another would be a massive shift by Americans to smaller and/or more fuel-efficient cars, which would reduce demand. It happened in the 1970’s (both things happened, actually), in response to the two major oil embargoes of that decade. It happened a couple of years ago, when prices spiked. But people tend buy cars on the assumption that today’s gas price will be the price for as long as they own the car. It probably won’t.