As gas prices make their way back down, I’ve been asking myself an important question: “ when will gas prices be back to normal?”
My gut told me the upper bound for normal, was about $4 a gallon. Similarly, my gut told me the lower bound was about $2 a gallon. Given that range, I figured normal was about $3 a gallon give or take a dollar in either direction. After looking at the below time series of gas prices, I realized my gut was wrong. Sure, almost all observations within my memory1 are within that range but that includes almost all the extreme observations as well.
The range of normal gas prices shouldn’t include extreme observations. So I set out to investigate. I started with the US Regular All Formulations Gas Price time series from FRED and plotted two histograms. One with 20 bins and another with each bin being a standard deviation.
A few observations jump out at me. First, gas prices are almost exclusively between $1 a gallon and $4 a gallon. The graph near the top of this post shows that the instances of sub-$1 per gallon gas are from before the turn of the century and the sur-$4 per gallon gas prices are from either the Great Recession or the last few weeks. Additionally, for as much attention variations in gas prices get, they don’t really vary that much. No observations are less than two standard deviations below the mean and incredibly few are more than two standard deviations above the mean.
But while that information is interesting, I’m not sure gas prices from 1996 are useful for determining what is normal today. To get a more up-to-date look I recreated the above analysis with the same gas price data but since 2000.
Again, a few observations stand out. First, the range of gas prices is more narrow as there aren’t any observations below $1. This makes sense since, as mentioned above, gas was only less than $1 per gallon before the turn of the century. Second, the distribution of gas prices is a lot more normal (in the statistical sense) since 2000 than it was for the full-time series.
So, what are normal gas prices? I’ll say about $2.50 a gallon is normal and about $0.50 to each side is the normal range.
Say since the late 2000s