Gas prices up, but not as much as oil prices

The Economist had a chart a few days ago showing that oil prices have roughly doubled since early 2005, when I was writing stories about the scary possibility of $60 a barrel oil.

But here's another interesting chart from the Energy Information Administration:

The doubling of oil prices has increased the retail price of gasoline by less than 50% since early 2005. This helps explain why demand diminution has so far been less than economists were expecting.

Comments

Doesn't oil make up only roughly one-half of the retail cost of gas? Why is this surprising? And who are these economists that were expecting sharper short-term drop in energy demand? I must be missing something in this post.

Posted by Bob | September 28, 2007 12:54 PM

Yet another reason to believe that a carbon tax won't be much use when it comes to stopping global warming...

Posted by Chris | September 28, 2007 1:25 PM

The market for refined petroleum products within the US is comparitively predictable. As long as consumption doesn't get too far above or below domestic refining capacity, prices will not vary nearly as much as crude prices.

A carbon tax that was set in stone for a significant duration would eliminate some of the less efficient refining capacity from operation, since it could no longer be run profitably. At that point, significant excess demand for refined products would need to be met by imports. Importing refined products tends to be less cost effecient than importing crude oil. A carbon tax levels a double-whammy on the supply/demand curve that way.

Posted by Njorl | September 28, 2007 4:18 PM

This helps explain why demand diminution has so far been less than economists were expecting.

What were they expecting (links)?

Seems like the recent literature has something like a -.05 elasticity? Since that is based on the price of gasoline, not oil, what would the price of oil have to do with it?

Posted by Eric H | September 29, 2007 12:21 AM