Cheap Gasoline? It's a Reality!

After hitting a peak of over $4.10/gallon last summer, US gasoline prices have fallen to about $2.50/gallon in July. That’s still really expensive, right? Well maybe it isn’t. Maybe even at $4/gallon gas is actually really cheap. Sounds like an unimaginable thesis, but it’s the truth.

I like to follow the stuff that peak oil guru Matt Simmons publishes on his website and one of his main thesis is that energy (particularly oil) is way too cheap. He has a slide in one of his presentations where he supplies the following pricing statistics.

I also did a few other calculations, which are quite astonishing:

• An average bottle of wine at a nice restaurant, $202/gallon
• A beer at a ball game, $68/gallon
• An average Starbucks drink, $28/gallon

Now obviously you aren’t buying a gallon of Vicks NyQuil at any given time, but there are a lot of people who drink a gallon of beer on a Friday night (that’s about 10 bottles), or consume a gallon of Starbucks coffee over a week (that’s about one grande drink a day). The question then is, how much utility do you get from that Starbucks drink every morning or a few beers at the ball game versus driving in your car?Well, let’s look at what a gallon can do for you in your car. A gallon of gas in an average subcompact, assuming a mix of city and highway driving, can take you about 30 miles (18 km), or about on a 45 minute drive (driving at an average of 40mi/h (64km/h)). By any standards, that’s a long ways to go for only $2.50. For comparison sake, go through the list below and decide what’s giving you more utility, 45 minutes in the car or approximately:

• 1/3 of a gallon of water (three bottles)
• 1/3 of a gallon of Coke (three cans)
• 1/5 of a gallon of Budweiser (two bottles)
• 1/10 of a gallon of a Starbucks drink (a tall beverage)
• 1/20 of a gallon of beer at a ball game (half a cup)
• 1/100 of a gallon of wine at a nice restaurant (a drop)

Maybe $4 a gallon isn’t that expensive when you look at it from a comparative perspective. Maybe energy really is way too cheap.If this post intrigued you, I would suggest you read some of Matt Simmons's presentations on his website or watch one of the interviews on YouTube.