Adjusted for Inflation, Gas Is Cheaper Today, Report Shows

As the summer driving season revs up, U.S. motorists will be grudgingly paying record gasoline prices this Memorial Day--but a leading oil expert suggests it’s time we stop our whining.

Daniel Yergin, one of the most prominent of petroleum industry consultants, told Congress on Wednesday that despite the pain caused by short-term volatility, the long-term trend in inflation-adjusted gasoline prices is decidedly downward.

You say you remember paying 30 cents a gallon in the 1960s? That’s $1.75 in current dollars, Yergin said. Gas for $1.25 in 1980 equals more than $2.50 in today’s dollars.

This slow erosion in real gasoline prices, due largely to more efficient refining and marketing by oil companies, has helped change what and how Americans drive in fundamental ways, Yergin testified before the House Commerce subcommittee on energy and power.

“Since 1991, gasoline prices [adjusted for inflation] have continued to come down, and even at the high prices of this spring are considerably lower than they were in the 1950s and 1960s in most areas of the United States,” said Yergin, drawing on a new report issued by the Massachusetts-based consulting firm he heads, Cambridge Energy Research Associates.

U.S. drivers are paying an average of $1.526 a gallon for self-serve regular gasoline, the highest price on record for Memorial Day, the Energy Information Administration reported Monday in its weekly survey of 800 gasoline stations. The average price of self-serve regular gasoline in California is $1.613, according to the EIA, an independent statistical and analytical agency within the U.S. Energy Department.

The U.S. pump price is up 40 cents a gallon from a year ago, and the California price up about 27 cents. Gasoline prices have been rising because of higher oil prices and low gasoline inventories.

Crude oil for July delivery rose $1.15 to $29.93 a barrel Wednesday on the New York Mercantile Exchange. Traders said a surprising drop in U.S. inventories indicated stronger demand from refiners making gasoline for the summer. Oil futures, which reached a nine-year high of $34.37 on March 8, are 75% higher than a year ago.

Oil and gasoline prices will continue to be volatile, driven by political events, supply, demand, technical problems, inventories and environmental regulations, said Yergin, 1991 Pulitzer Prize-winning author of “The Prize,” a history of the oil industry.

Another witness, American Petroleum Institute Chief Executive Red Cavaney, said recent environmental regulations are “too much, too soon.” The Environmental Protection Agency’s requirement that a cleaner-burning gasoline go on sale June 1 in about one-third of the country is causing shortages and high prices in the Midwest, the trade group chief said.

In California, a cleaner-burning gasoline required since 1996 has led to “infrastructure stress,” with fewer refineries operating at peak capacity to produce the unique fuel, Cavaney said.

“Surely, the attendant volume and price volatility is not the type of future we want for the rest of the nation,” he said, urging Congress to adopt an energy policy that allows the oil industry flexibility.

Yergin noted that lower inflation-adjusted gasoline prices have helped spawn the boom in light trucks--pickups, minivans and sport-utility vehicles--which make up nearly four out of every 10 vehicles on the road today. The EPA requires light trucks to get 20.7 miles per gallon on average, compared with 27.5 mpg for the average new car; in actual on-road driving, fuel efficiency drops by about 15%, Yergin’s report said.

Americans also are driving 34% more miles than they did 20 years ago more because more women are commuting to work, younger drivers are entering the work force and a recent baby boomlet has parents chauffeuring their children around, the report said.

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Memorable Gas Prices

U.S. motorists will pay the highest gasoline prices for a Memorial Day weekend--an average of $1.526 a gallon nationwide--since the Energy Information Administration began tracking prices in 1990. Here are the average prices for self-serve regular gasoline in five regions, according to the latest weekly survey by the EIA.

U.S. average: $1.526