Gasoline Price Changes - Federal Trade Commission

THE DYNAMIC OF SUPPLY, DEMAND, AND COMPETITION
Similarly, throughout most of the year, U.S. consumers faced escalating gasoline prices.
During the month of January, the national average price for regular gasoline was $1.57 per
gallon. The peak for monthly average gasoline prices was October, at $2.00 per gallon. By the
end of 2004, as crude oil prices declined, so did monthly average gasoline prices, ending the year
at $1.84 per gallon. 40 As noted earlier, Figure 2-1 shows the close relationship between crude oil
and gasoline prices.
The 2004 prices for crude oil and gasoline differed significantly from what the U.S.
experienced during much of the 1990s, when crude prices typically averaged close to $20 a
barrel and the national average price for gasoline hovered around $1.20 per gallon. 41 Although
prices fell toward the end of 2004, neither crude nor gasoline prices returned to pre-2004 levels,
and both were rising again at the beginning of 2005. Most recently, WTI crude prices surpassed
$60.00 a barrel during June, 2005. 42
Why did crude oil prices escalate so sharply in 2004? A number of factors appear to
have contributed, including rapidly increasing demand from burgeoning new economies in China
and other areas of the world, supply restrictions, and concerns about the stability of oil supply. 43
In addition to the discussion of events below, other factors may have also contributed to 2004’s
crude prices.
A. Worldwide Demand for Crude Oil – and for Other Commodities Important
to Developing Economies – Grew at Rates Higher than Projected, Crude
Producers Were Unprepared.
In recent years, world demand for crude oil has been increasing significantly. Figure 2-5
shows that world demand increased from 75.3 million bpd in 1999 to 82.4 million bpd in 2004.
CHAPTER 2: WORLDWIDE SUPPLY, DEMAND, AND COMPETITION FOR CRUDE OIL 25