Ya gotta believe!
Thanks to Harry for sending me his 1984 paper, On the inevitable return of higher oil prices, in response to my post on CAFE standards. In that post I presented a graph based on the same data set as this one, but without the trend line:
Because I was talking about the post-1974 period, I had not noticed that the graph shows a persistent and substantial price decline from about $2.80 per gallon in 1919 to about $1.70 in 2007, based on the trend line. After 88 years of steady real-world price decline, my faith in the theory might begin to weaken. Hang in there, Harry.
An email from Doug suggests I should have charted crude oil prices instead of gasoline prices. I agree. EIA has a long series of gasoline prices but no crude oil prices before 1978. I've looked for crude oil price series in the past and the best I could find was on the website of WTRG Economics. This seems to be the best graph.
Not having the data, I can’t compute a trend line. Your eyes are as good as mine. That the author puts in average and median price lines suggests that he may see the real crude price history as having a horizontal trend with some spikes.
Note the divergence between US prices and world prices between 1973 and about 1983, during which period US “old oil” was under price controls. That would account for gasoline prices in the mid-1980s not rising as much or as soon as world crude oil prices. We can argue about the unintended consequences or collateral damage of price controls, but they did constrain retail prices, didn't they?
Finally, I am not predicting what crude oil prices will do over periods of 5, 10, or 20 years. I predict only that they will fluctuate. I'm just saying that a supply-demand analysis that demonstrates the existence of an upward force but explicitly assumes away all of the downward forces such as economies of scale, competition, technology improvements, government interventions, new or expanded production, etc., and does not explain real historical data, is not a very persuasive basis for prediction.
Getting closer to the original source of the crude oil price series from 1861! It comes from BP (page 16), and it is probably updated annually. It may also be available in a less cumbersome form.
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