Gasoline And Price ControlCurrent U.S. Retail Gasoline Prices Current U.S. Retail Gasoline Prices, cont’d.Reasons for Increasing Gasoline PricesU.S. Crude Oil ProductionReasons for Increasing Gasoline Prices, cont’d.1973’s Oil Crisis1973’s Oil Crisis - Some DataOil Price Chronology 1979’s (Second) Oil CrisisGovernment’s ActionsPrice Control on GasolineRent DissipationNo Price Control in Current PeriodOur ActionsConclusionAcknowledgementsGasoline Gasoline And And Price ControlPrice ControlJanet NgJanet NgEEP 142EEP 142Spring 05Spring 05Current U.S. Retail Gasoline Prices Current U.S. Retail Gasoline Prices Source: Weekly U.S. Retail Gasoline Prices, Regular Grade, 2005 4/11/2005 4/18/2005 4/25/2005Change from week agoChange from year agoStatesCalifornia 2.592 2.584 2.565 -0.019 0.441Colorado 2.269 2.244 2.217 -0.027 0.386Florida 2.296 2.277 2.263 -0.014 0.448Massachusetts 2.172 2.152 2.187 0.035 0.438Minnesota 2.121 1.997 2.033 0.036 0.272New York 2.311 2.304 2.309 0.005 0.42Ohio 2.22 2.066 2.156 0.09 0.376Texas 2.157 2.131 2.119 -0.012 0.444Washington 2.442 2.476 2.478 0.002 0.478Current U.S. Retail Gasoline Prices, Current U.S. Retail Gasoline Prices, contcont’’d.d.Source: Weekly U.S. Retail Gasoline Prices, Regular Grade, 2005Reasons for Increasing Gasoline Reasons for Increasing Gasoline PricesPricesOPECOPEC’’s Short Supply s Short Supply ––bbig oil companies operate ig oil companies operate at tight supply and at tight supply and monopoly prices. monopoly prices. Decrease in U.S. crude oil production Decrease in U.S. crude oil production ––productionproductionaveraged 5.4 million barrels per day averaged 5.4 million barrels per day (bbl/d) during the first ten months of 2004, was (bbl/d) during the first ten months of 2004, was now at 50now at 50--year lows. year lows.U.S. Crude Oil ProductionU.S. Crude Oil ProductionSource: United States Country Analysis Brief, 2005Reasons for Increasing Gasoline Reasons for Increasing Gasoline Prices, contPrices, cont’’d.d.Strong consumer demand Strong consumer demand --demand increased at demand increased at nearly 9.2 million bbl/d over the last four weeks nearly 9.2 million bbl/d over the last four weeks in 2004, exceeding 2003in 2004, exceeding 2003’’s demand by nearly 0.5 s demand by nearly 0.5 million bbl/d. million bbl/d. Other factors Other factors --insurgent attacks on oil pipelines insurgent attacks on oil pipelines in the Middle East, and a refinery explosion near in the Middle East, and a refinery explosion near Houston, Texas, in late March Houston, Texas, in late March disrupted the disrupted the supply chain.supply chain.19731973’’s Oil Crisiss Oil CrisisReasons for 1973Reasons for 1973’’s Oil Crisiss Oil CrisisStrong consumer demand Strong consumer demand --36% of energy 36% of energy consumption was in foreign oil in 1973; while it had consumption was in foreign oil in 1973; while it had been 22% only in 1970. been 22% only in 1970. Political Reasons Political Reasons --the Watergate scandal of President the Watergate scandal of President Richard Richard Nixon and the devaluation of U.S. dollar. Nixon and the devaluation of U.S. dollar. A growing tension between U.S. and Arab countries A growing tension between U.S. and Arab countries --ArabArab--Israeli conflicts and Israeli conflicts and the Yom Kippur War. the Yom Kippur War. OPECOPEC’’s decision s decision --reduced supply and raised oil prices.reduced supply and raised oil prices.19731973’’s Oil Crisis s Oil Crisis --Some DataSome DataImports of oil to U.S. dropped from 6 million in Imports of oil to U.S. dropped from 6 million in September 1973 to 5 million in subsequent September 1973 to 5 million in subsequent months. months. The price per barrel rose 130% by December The price per barrel rose 130% by December 1973. 1973. Oil embargo ended in March 18, 1974; but Oil embargo ended in March 18, 1974; but OPEC OPEC continued to raise oil prices. continued to raise oil prices.Oil Price Chronology Oil Price Chronology Source: Energy Information Awareness Graph of Oil Prices Source: Energy Information Awareness Graph of Oil Prices19791979’’s (Second) Oil Crisiss (Second) Oil CrisisReason for 1979Reason for 1979’’s Oil Crisiss Oil CrisisThe Iranian Revolution The Iranian Revolution --another shock came in another shock came in 1978 to 1979 when the new Shah of Iran cut off 1978 to 1979 when the new Shah of Iran cut off oil production.oil production.GovernmentGovernment’’s Actionss ActionsThe U.S. Government set maximum prices for The U.S. Government set maximum prices for gasoline in 1973 and 1979 in response to the gasoline in 1973 and 1979 in response to the decrease in the supply of gasoline by OPEC. A decrease in the supply of gasoline by OPEC. A price control (and rationing) were imposed on price control (and rationing) were imposed on gasoline; dealers sold gas on a firstgasoline; dealers sold gas on a first--comecome--firstfirst--served basis. served basis.Price Control on GasolinePrice Control on GasolineRent DissipationRent DissipationSellers could capture some of the nonSellers could capture some of the non--exclusive income exclusive income by:by:Cutting the business hours Cutting the business hours --provide dayprovide day--time service time service instead of 24instead of 24--hour service. hour service. Lowering gasoline quality Lowering gasoline quality --sell gasoline of lower octane sell gasoline of lower octane rating, which incur a lower production cost. rating, which incur a lower production cost. Reducing services provided with the gasoline Reducing services provided with the gasoline --change change from fullfrom full--service to selfservice to self--service or noservice or no--service. service. Demand may be lower due to the above measurers and Demand may be lower due to the above measurers and total dissipation reduces.total dissipation reduces.No Price Control in Current PeriodNo Price Control in Current PeriodDeadweight loss or rent dissipation.Deadweight loss or rent dissipation.Rising gasoline prices lead to economic growth? Rising gasoline prices lead to economic growth? Example of Germany in the 1990s.Example of Germany in the 1990s.Germany faced a crude oil price increase of Germany faced a crude oil price increase of 211% between the fourth