Could gasoline reach thirteen dollars ($13) per gallon in the USA?
During the oil crisis of 1973-1974, the prices of both oil and gasoline quadrupled.
With current gasoline prices near $3.25 per gallon, a quadrupling would make the price $13 per gallon.
Many people will drive 12,000 miles per year. In a car that gets 25 miles per gallon, that is 480 gallons of gasoline per year... Let's look at three possibilities...
1. Gasoline at $1.99 per gallon (January 22, 2007) ==> $960 per year...
2. Gasoline at $3.25 per gallon (May 4, 2007) ==> $1,560 per year... That's an additional $600 per year.
Since 70% of American's live paycheck to paycheck, this means that this is $600 less that this person spends on restaurants, trips, entertainment, and non-essentials.
Where does that extra $600 go? Around 50% goes to pay for the crude oil, or $300. The USA imports about 2/3 of the crude oil it uses, so $200 (or 2/3 of the $300) goes to foreign oil producers.
Now let's take a look at scenario number three.
3. Gasoline at $12.99 per gallon (a quadrupling of the current price) ==> $6,250 per year... That's an additional $5,290 per year.
Where would the average person manage an extra $5,000 for gasoline?
This quadrupling may sound impossible, but it has happened before.
In 1973-74, the price of oil quadrupled from $3/barrel to $12/barrel. Gasoline prices quadrupled from about $0.30 per gallon to $1.20 per gallon.
This price of $1.20 per gallon may seem low, but that is only because a dollar in 1973 was worth so much. Since then, there has been about 400% inflation. It would take about $5.00 of 2007 money to equal $1.00 of 1973 money. Keep your eye on the concept of quadrupling.
When will $13/gallon gasoline happen? Would the economy collapse first?
Are we hiking a mountain ridge line, through a thick fog, with a mile drop on either side, not noticing that the ridge is getting narrower with each step we take?
Gasoline prices of $13/gallon do seem unbelievable, but history tells us to consider the possibility.
Additional Reading:
http://www.cbc.ca/news/background/oil/http://www.buyandhold.com/bh/en/education/history/2002/arab.htmlhttp://data.bls.gov/cgi-bin/cpicalc.plhttp://en.wikipedia.org/wiki/1973_oil_crisis