Have Oil Jitters Gotten Overblown? (No)
Um, no.
An Online WSJournal article asks that question. The writer dutifully reported what the people she interviewed said.
That's unfortunate, cause they said some fairly unsupportable things:
"Indeed, when you break down the numbers, $2 a gallon at the pump isn't as big a drag as it looks like. According to David Kelly, economic advisor to Putnam Investments in Boston, the price of gas is about 50 cents higher today than it was a year ago. While that's a 33% increase, the average American uses about 700 gallons of gas a year translating into an extra $350 for the entire year, assuming gas prices don't drop. It's not chump change, but it's less than $30 a month hardly a budget breaker for most families.Seriously, what color is the sky in this guy's world?"People overestimate the importance of gas prices because you can't drive two city blocks without seeing it on a sign," says Mr. Kelly. "[The extra cost] is about the same as one extra car payment it won't break you."
1) It's not $2 anywhere around here;2) $30 extra dollars a month? Not for a 2 car family, not if they live in suburbia, not if they drive further than the 12 miles Mrs. Big Picture drives to work, not if one of their cars isnt a Prius . . .
3) Fun with math:
I was paying $1.49 - $1.89 last year -- Now, I am paying $2.29 - $2.59 for regular.That's as much as $1 higher -- my wife's car costs $8-12 more to tank up
(15 gallon tank X 80 cents X 5 - 6 refills per months)Thats $50-60 per month for a new, small, fuel efficient car -- a 4 cylinder, manual transmission, 28 mpg PT Cruiser; Many families have 2 cars -- and in many of them, one of the cars is an SUV that gets 12 - 14 mpg. As cars age, they tend to get worse mileage, also.
That's gonna be any where from $100 - $120 more per month -- for the SUV alone, depending upon miles driven. 2 cars, its more.
4) Additional evidence: Slowing same store sales. No, it was not due to Shrek 2 -- it was caused by a finite supply of discretionary income -- more than $30 -- going to gasoline costs . . .
UPDATE JUNE 6, 2004 9:06pm
My quant alarm went off today after rereading this post. In particular, I was wondering about one sentence:
"the average American uses about 700 gallons of gas a year"Not the average drive, or the average car owner, but the average American. Pretty slick, jack.
I don't care about a mythical "average" -- this guy's numbers are way, way off. And that's before we get to all the additional expenses -- travel, shipping, and every other price bump caused by higher fuel expenses (outside of gas for the family car). Everything else a family purchases will costs a little more.
$30 a month? Puh-leeze! (Someone by that poor schlub a calculator . . . )
Source:
Wall Street's Jitters About Oil May Have Gotten Overblown
Erin Schulte
WSJ, June5,200411:47a.m.
http://online.wsj.com/article/0,,SB108618586524326849,00.html?mod=home_whats_news_us
Sunday, June 06, 2004 | 12:20 PM | Permalink
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We all like to whine about price increases, but the fact of the matter is that adjusted for inflation and as a percentage of average American income, gas prices are still low. You also might want to analyze how much of that $2.40 is going to your state and federal government, then find me another staple that is taxed as high.
If it really bothers people, they will get rid of the SUV and improve their gas mileage, making the monthly outlay of gas constant. But it all comes down to everyone wanting to keep their lifestyle and forcing the costs on someone else.
Posted by: Director Mitch | Jun 6, 2004 2:30:55 PM
I agree -- people look at me like I have two heads when I point out that gasoline -- explored for, drilled, extracted, shipped, cracked, refined and pumped into your car -- cost less than Coca-Cola.
Of course, that misses the point: If you are spnding an extra $100 or $200 a month on Petrol, you are not spending it on sometihng else.
In a consumer economy, thats a bad thing . . .
Posted by: Barry Ritholtz | Jun 6, 2004 9:36:45 PM
Every time I hear "adjusted for inflation, gas is cheap" I want to scream. It just shows how high general prices have risen in the past, something that somehow is overlooked because I guess 2% inflation is a 'good thing'. Why don't the papers print this headline: "You think gas is expensive, look at the price of everything else!!"
Barry, I completely agree with you that this is something to worry about, too.
Posted by: Mike | Jun 7, 2004 2:09:11 PM
