Fuel 2Although various forms of gasoline have been used for several centuries, it wasn’t until September 5, 1885 that a gasoline pump was manufactured in Fort Wayne, Indiana. This was initially for tractors but was the first step towards the vast array of stations nationwide we have today. As far as what Jake Gumper (the owner of the 1st pump) charged, I’m not sure, but I’m guessing it was for personal use only.1 Nevertheless this was the beginning of what we so commonly referred to today as “pain at the pump.”

Unfortunately, there is little to no solid data on gas prices before the 1950’s, and so we’ll begin our journey through the history of gas prices here. In 1950, gasoline cost about 26.8 cents per gallon. Gas rose about a cent or so per year until 1957 where gas was in its most remarkable period. From 1957 to 1969, prices at the pump only went up a total of 3.8 cents from 31 cents per gallon to 34.8 cents per gallon! Imagine 12 full years with a less than a 4 cent gain! If one were to spread it out evenly (though this is not exactly how it happened), the math shows that costs climbed a mere 1/3 of a penny per year during this period. This will provide an interesting, perhaps scary, contrast to the latest fuel developments. But, this was too good to be true and things changed drastically in the 70s.

By 1974, the cost of fuel had risen to 53.2 cents per gallon. This is a serious jump from the way things had been going the decade before. Gasoline prices rose 18.4 cents in five years! That is a 48% increase. But why? What was so different in 1974? For two main reasons.

First, the Clean Air Act Amendments of 1970 was passed and introduced in 1974. These amendments required automobile makers and gas stations to meet an 87 octane (minimum) standard which limited lead to 4.0 grams per gallon. The lead in the gasoline was grossly polluting American air quality and so the Act intended to cut down on these emissions by removing the lead from the gas. Although the environment may have benefited from this, the American people’s wallets did not. Since lead had to be replaced by more and more blended additives to maintain an 87 octane in its absence, it cost the oil refineries more money to produce automotive fuel thus driving up the prices considerably.

Second, several Arab nations furious over the US’ support for Israel in the 1973 Arab-Israeli War issued an oil embargo against the US. This came during a period of lower domestic production of crude oil. As a result, supplies became extremely tight with “30% less of the more costly crude oil was imported during the embargo.” Extremely long lines developed at gas stations all around the country some people were paying as much as 57% more for gas than they had before the embargo was instituted.

From ’74 to ’82 gas prices rose to 1.19 dollars per gallon another massive increase, though a bit more spread out that the ’70-’73 era. This was because after the embargo was lifted serious damage had been done to oil markets worldwide and OPEC stood in control of much of the oil costs. Playing catch up for all the oil reduction during the embargo got expensive because the oil companies were able to ask such high prices and receive them. In addition the amount of lead which was allowed in gasoline by 1982 was cut to 1.1%. As before, lead was one of the cheapest fuel additives, and by diminishing its presence in gasoline other more expensive agents had to be used. As production costs went up during refineries they were passed on to the average consumer.

However, after these turbulent fuel price decades gas basically stayed at the same price, around 1.1 -1.2 dollars per gallon from 1981 to 1999. Of course there was some variation, but increases rarely exceeded 25 cents. In fact, the average price of gas in 1999 (1.165) was a bit cheaper than it was in 1981 (1.19). During this period fuel production was up and kept soundly at the pace with demand. There were no new drastic environmental standard changes and no political fallouts from foreign affairs.

By 2004, gas prices were at close to 2 dollars a gallon, a mark never before reached (they were 1.948). Then by September 2005 gas was at 3.36 dollars per gallon! Then they dropped to 2.57 dollars per gallon in 2006, only in some places in the summer of 2008 to go over the 5 dollar mark! So exactly what happened in these volatile years to cause gas prices to over double in cost? Why did it take us 4 years to meet the cost increase that history tells us occurs about every 20 years?!

A person could write their Ph.D thesis answering this question. But, to cover the major points, oil production worldwide has peaked, demand for fuel is ever-increasing, the value of the currency most oil is traded in, the US dollar, is terribly low and continually declining, there are several conflicts in oil-producing nations such as Nigeria, and natural disasters have been more intense and more frequent. This confluence of factors all occurring in a short period of time have really created the perfect storm for driving up the cost of gas prices. Unfortunately, there is little hope that prices will balance out again, since it is going to cost oil companies more and more money to get less and less oil out of the ground, while more and more people are born demanded it. If there is anything to take from this brief history of gas prices, it is that gas has had its day – and no matter how hard it is to admit – it’s over.


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Featured Article Footnotes

1  History of Gasoline, By Mary Bellis , About.com
2  http://www.eia.doe.gov