This week the price of oil passed $125 a barrel, and the national average price for mid-grade gasoline stands at $3.898 (5/9/08). A year ago, the average price for that same gallon of gas was $3.223. We all hate paying more to fill up our gas tanks, and the high gas price is killing our wallets, but how's it affecting the overall economy? I did a little digging and found a Morgan Stanley report that suggests a 1 cent increase in the price of gas translates to a $1.3 billion reduction in consumer spending. All else equal, that means $87.8 billion of consumer purchasing power has been pumped in to the gas tank over the past year. Ouch!
While I'm writing about oil & gas, I thought it would be neat to show how rising oil prices impact gas prices. So, see below. Today, the cost of crude oil accounts for about 68% of the price of gas, up from 43% in 2001. Of note, nearly all of the increase in gas prices over the last 7 years is due to increasing crude prices, not increasing taxes, refining costs or distribution costs.
