The Motley Fool Previous Page

Quit Griping About Gas Prices -- It's All in Your Head!

Sean Williams
June 26, 2012

The sun is out, temperatures around the country are soaring, and white dresses are all the rage -- summer is officially here! However, suntans and sweltering heat aren't the only things that typically accompany the start of summer.

Rising prices at the gas pump are another common occurrence in the summer, as people take more time off from work and refiners produce a pricier blend of fuel for summer driving months. Between the combination of heat and high prices, you're bound to hear a complaint or 20 about the high price of petrol while filling up your vehicle.

Today, I plan to tackle the complaint that gas prices are too high and simply show you the other side of the argument.

Gripe No. 1: "High oil and gas prices are all OPEC's fault."
The Organization of Petroleum Exporting Countries is made up of 12 Middle Eastern, African, and South American countries -- many of which aren't on the best terms with the United States, politically. It has been the subject of finger-pointing for pretty much the last half-century.

At one time in OPEC's history, it could indeed control oil production and affect prices. In the mid-1970s, Iran and many other Arab nations spearheaded an effort to cut off exports to Israel's allies, effectively driving up the price of gasoline in the U.S.

However, as time has passed, OPEC's production capabilities haven't improved by much. Perhaps this is due to the unstable political structures in many of these countries, or it could have to do with limited land and technology resources available; either way, production has stagnated. In 1980, OPEC was able to produce close to 30 million barrels per day. From 2005 through 2012, production ranged between 30 million and 33 million barrels per day -- a very small increase from 30 years prior. At the same time, non-OPEC production, which includes finds in Russia and the U.S., has soared and now constitutes the majority of oil produced today. Non-OPEC nations supplied 57% of all oil in 2011, compared with just 43% for OPEC nations.

Simply put, OPEC doesn't have the pricing control it once had, so stop the finger-pointing!

Gripe No. 2: "The U.S. Government's gas tax is nickel-and-diming us to death!"
Everyone is probably well aware that the U.S. government is taxing us on each gallon of fuel that we pump into our cars. But most people fail to realize just how lucky we are relative to the rest of the industrialized world when it comes to paying taxes on fuel.

Although there are people out there paying as little as $0.09 per gallon for fuel, U.S. citizens should be thanking their lucky stars that gas prices have only been as high as $4 per gallon.

Source: Bloomberg.

The disparity in this graph is huge. According to a recent survey by Bloomberg of 55 countries, the U.S. paid the 44th-highest price for gas. The reason we rank so low is that the U.S. government subsidizes a good portion of what we pay, and the final tax is only $0.184 per gallon. Now compare this to Germany and France, which tack on taxes of $4.88 and $5.40 per gallon, and you should begin feeling a bit more grateful for what we pay at the pump. Such comparatively high taxes can mean huge social benefits, such as the taxes completely subsidizing citizens' college educations in Norway, but they can also be a significant financial hindrance to citizens.

Gripe No. 3: "I spend too much money on gas already for it to move even higher!"
Gas prices are elevated -- no doubt about it! "Sticker shock" has a lot of people at least contending that they'll drive less this summer in order to conserve money. But let's dig a bit deeper than just nominal gas prices, and I'll show you why this gripe also doesn't hold water.

One key factor often overlooked when tracing gasoline's exponential climb higher is inflation:

Source: U.S. Energy Information Administration.

Over time, things get more expensive, including gasoline. Although the nominal price of gasoline has risen by nearly 600% since 1976, the real price (adjusted for inflation) is up by roughly 40%. That's not menial by any means, but it's also not the backbreaker some people have made it out to be.

Another factor that drivers overlook is that cars are considerably more fuel-efficient than they were just 30 years ago:

Source: U.S. Energy Information Administration.

You can see that although the inflation-adjusted price of gasoline is similar now to what it was in 1980, fuel efficiency has drastically reduced the cost we as drivers incur per mile in inflation-adjusted dollars. This effect is only bound to get more pronounced as General Motors (NYSE: GM  ) , Ford (NYSE: F  ) , and Toyota Motor (NYSE: TM  ) agreed in July 2011 to double fuel efficiency to an average of 54.5 miles per gallon by 2025.

You're probably now wondering, "Then why do I feel like I spend so much on gas at the pump?" The answer to that question is simple: real wage growth stinks!

Source: St. Louis Federal Reserve; Based on private-sector hourly earnings.

Although nominal wages have tripled from $6.57 to nearly $20 per hour since 1980, the negative effects of inflation have reduced that 200% gain to a measly 1.51% real wage increase -- in 32 years! Compare this 1.51% real pay raise to gasoline's 40% bump, and there's