Gas at less than $2/Gallon

I just filled up my gas tank at a local gas station in Hayward, CA and I always use premium gas and was amazed that the listed price was $1.99!  I was wondering when was gas this cheap and assumed it has been several years, but wanted to look it up.  Well, it has been roughly three years, January 2005 was the last time gas prices were this low.

January 3, 2005:

Dow Jones Industrial Average (^DJI) was at 10, 729

NASDAQ Composite (^IXIC) was 2, 152

Unemployment was 5.2%

GDP 3%

Compare that to December 5, 2008

Dow Jones Industrial Average (^DJI) was at 8,635

NASDAQ Composite (^IXIC) was at 1,509

Unemployment was 6.7%

GDP .1% (Q3 2008 data, Q4 data not available as of yet)

July 14, 2008 was the peak of gas prices at $4.05 for regular gas based on average US prices and currently is it $1.79.  This represents a ~56% decline in gas prices in roughly an 18 week time frame!  If you compare that to the drop in market prices, it is drastically disproportionate as that decline in the stocks market (NASDAQ and Dow) is roughly 20% to 30% during the same time frame.

Since 1990, the lowest gas prices was in Feb. 22, 1999 at $.88 (that’s right, 88 cents!).  If you recall, this was during the dot.com era, so it was at time when the economy was very strong.

So, when you take all of the above information into consideration, the big question is whether or not the economy effects the cost of gas and/or is it based on the basic theory of supply and demand.   The current extreme reduction in gas prices really raises some eyebrows as demand has not been reduced that dramatically.   I agree that there is a reduction in demand, but the fact is that globally people are still driving, flying, goods are being shipped (by air/sea/ground), and goods are still being produced.  Empirical information to why gas prices have reduced sharply is hard to find.  I have read many articles as to why gas increase/decrease, but I’m usually left unsatisfied with the explanations provided and really believe the very few people truly understand the reasoning of fluctuating gas prices.

In any case, I’m enjoying the drop in gas prices and this reduction is likely to continue, perhaps as low $1.05 (as was the case a few months following the terrorist attacks on 9/11/2001).

Some of the data provided via these links:

http://www.eia.doe.gov/oil_gas/petroleum/data_publications/wrgp/mogas_history.html

http://www.bls.gov/

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