Do you remember feeling the pain at the pump in the 2000s?
Gas in the U.S. averaged $1.33 per gallon at the start of the decade.
But by 2008, the average price had absolutely soared to $3.09 per gallon. And prices ultimately peaked at $4.11 per gallon that July.
Americans couldn’t avoid the pain at the pump until the housing bust ripped the financial markets apart. After that, they got a little bit of relief through the end of 2008.
Now, something about those numbers should stand out to you…
Those 2000s-era prices don’t look much different from today’s prices.
Folks, we’re nearly 15 years past 2008. The world has changed a lot since then. But a lot has stayed the same, too. Just glancing at the news can confirm that point…
In the 2000s, Russia had just taken its first steps to join the World Trade Organization. But then, like today, its attempt to project force created problems on the global stage…
Back then, Russia accused the Republic of Georgia of committing genocide and other aggressive actions. And eventually, in August 2008, the Russo-Georgian War played out.
We all know the current chapter of the Russia story well…
Russia’s invasion of Ukraine earlier this year has caused serious aftershocks around the world. Here in the U.S., we’ve mostly felt these effects in the energy market.
That makes sense…
Oil is a major Russian export. Importantly, that makes it a weapon of war in the current chapter of this story as well.
And the U.S. and its European allies have just implemented the so-called “oil cap”…
This cap is supposed to force Russia to sell its oil below market prices. But as you can imagine, Russia says that absolutely won’t happen.
Put simply, the pressure on the energy market isn’t letting up. But I’m still left wondering…
How does the current setup in oil compare with what happened more than a decade ago?
Today, let’s answer that question…
Sometimes, a simple reality check is all you need to get your bearings…
In short, we’re going to look closer today at some of those 2000s-era oil prices I mentioned above. And more specifically, we’ll check them against inflation.
Let’s start with the $1.33 average price per gallon at the start of 2000. Due to inflation, that would be equivalent to about $2.30 in today’s dollars.
So right off the bat, we can easily see that gas prices are more expensive today than they were at the start of the housing boom back then.
But we also know that we’re at a very different point in the economic cycle today…
Remember, the average gas price in the U.S. soared to $3.09 per gallon by 2008. That would be equivalent to $4.28 per gallon in today’s dollars.
In other words, gas prices sure feel expensive today. But as bad as that might feel, when you factor in inflation, we’re not anywhere near the same level of pain we experienced roughly 15 years ago.
And when we look at the peak numbers it gets even crazier…
The average U.S. gas price peaked at $4.11 per gallon in July 2008. Today, that would equate to a staggering $5.69 per gallon.
For reference, the average price peaked this past June at just more than $5 per gallon.
Folks, I’ve included a lot of numbers in today’s message. But the takeaway is simple…
The last time gas prices soared, the pain got a lot worse than it is right now. And thanks to everything going on with Russia, the energy markets continue to face pressure today.
So will gas prices cool off? Eventually, sure. But I wouldn’t hold my breath waiting for that…
In reality, gas prices can stay elevated for a lot longer than American consumers want. And even if we go all the way back and use the years leading up to the housing bust as a baseline, we should expect to see prices above $3 per gallon for the foreseeable future.
Put another way… we shouldn’t bet against the energy market yet.
Good investing,
Marc Chaikin
