The History of Gas Prices in the US
The Atlantic recently referred to gasoline as “the only product whose prices are advertised on big signs by the side of the highway.”
No other commodity — not gold and not the wheat we use to make bread — can compete with oil’s power to stoke geopolitical conflict, steer international trade and determine the foreign policies of nations. For most people, however, gas is just the stuff you set on fire to make your car go — and no one likes when it’s expensive.
Gas prices had fallen for 51 days straight as of Aug. 5, providing sorely needed relief from their June highs above $5. But why did prices ever climb so high in the first place, what’s making them fall now, and what has driven the cycles of high and low gas prices throughout history?
Economists tend to frame historical gas prices as being reactionary to the major social, political and economic events of their day. Common examples include:
- Gas prices rose after World War II due to a flood of pent-up consumer demand
- Gas prices rose in the 1970s as a result of an OPEC oil embargo
- Gas prices rose most recently in response to the post-pandemic reopening and conflict in Ukraine
International economic expert Mykola Volkivskyi, founder of the First International Ukrainian Foundation of Development and a former advisor to the committee chairman of the Ukrainian Parliament, believes it’s usually the other way around: Oil prices have more power to influence events than events have power to influence oil prices.
“Today, the world is critically dependent on the stability of the energy market,” Volkivskyi said. “The slightest fluctuations in prices affect the cost of products, the currency market, the ratio of the money supply in the economy and the property status of the population. One cannot speak of a clear cause and effect, as if an increase in energy prices will lead to a revolution or the collapse of the state. Nor can it be said that some culminating event by itself has a significant effect on prices.”
That said, global events and gas prices have been influencing each other since the dawn of the automobile.
The Four Phases of Historical Gas Prices
Oil prices fluctuate throughout the day, every day, but the history of gas prices in the United States can be loosely organized into four distinct periods.
In 1908, Henry Ford introduced the Model T. Three years later, the Supreme Court backed the government’s breakup of John D. Rockefeller’s Standard Oil — which owned 90% of the country’s refineries and pipelines — into the companies that would become Exxon, Mobil, Chevron, Amoco and Conoco.
It was the beginning of an era defined by low inflation and remarkably steady gas prices, which held within a penny or two of $0.20 for decades between the 1920s and the end of World War II.
The Allied victory in World War II ended the era of rock-steady gas prices that had defined the past two-plus decades. The economy absorbed an avalanche of pent-up consumer demand and the price at the pump rose — but a more consequential story was playing out far away.
According to NPR, America started on the path to foreign dependence the moment the world’s largest oil reserves were discovered in Saudi Arabia in 1938. A flood of cheap foreign oil fueled the postwar boom — but it came at a price.
A region of the world that most Americans back then couldn’t have pointed to on a map held sway over the price of gas in the United States for the eight decades that followed.
A new geopolitical force emerged when Iran, Iraq, Kuwait, Saudi Arabia and Venezuela formed the Organization of Petroleum Exporting Countries (OPEC) in 1960.
Many factors contributed to the economic and political turmoil of the 1970s, but none more so than OPEC’s oil embargo and the energy crisis it created.
The era of cheap energy that had defined the 1950s and ’60s — oil often cost less than $1 per barrel — ended in 1973. That year, OPEC initiated an oil embargo that cut America off from the crude supply that it had come to depend on. The embargo was retaliation for America’s support of Israel against its Arab neighbors in the 1967 and 1973 wars. It laid the groundwork for the now-famous images of endless lines of cars snaking into filling stations that had run out of gas.
In 1979, the Islamic Revolution in Iran created a second energy crisis and, when the dust settled, gas prices had tripled over the course of the decade and the Middle East was a powerhouse.
According to NPR, most Americans at that time believed that the gas they pumped into their cars still came from American oil fields, as it had in the time of Henry Ford. The decade’s events served as a reality check: Adversarial foreign nations now had the power to cripple the American economy at will by manipulating its oil supply.
Starting in the late 1970s, the global market was flooded with newly discovered oil from non-OPEC sources, including Alaska, Siberia, the North Sea, the Gulf of Mexico, India and Brazil. By 1981, non-OPEC countries were outproducing OPEC, which lost control over global supply and prices.
The bottom dropped out of the oil market and gasoline was dirt cheap once again starting in the late 1980s. Although prices rose incrementally in the 21st century, there was no repeat of the 1970s energy shock until the price of gas breached $5 per gallon in June 2022.
Today, America produces 16.59 million barrels of oil per day compared to Saudi Arabia’s 10.95 million, making the United States both the largest producer and the largest consumer of oil in the world.
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