Murder at the gas pump
posted by Charles on March 29, 2008 7:22 PM under News
Gas prices continue to rise as petroleoum prices soar above $100 a barrel. We're all used to hearing news reports by now that gas prices in the U.S. may approach $4 a gallon by summer. Why are prices so out of control? Who is to blame? And who gets all the money from every gallon sold? These questions led me down a road of conflicting answers, and some of them may surprise you.
Before we answer these questions, lets travel back in time and look at gas prices just a few years ago. Today, a barrel of oil is over $100. In 2005 the price of crude oil averaged $50.23 per barrel, and crude oil accounted for about 53 percent of the cost of a gallon of regular grade gasoline. In comparison, the average price for crude oil in 2004 was $36.98 per barrel, and it composed 47 percent of the cost of a gallon of regular gasoline. Gas prices during this time averaged $2/gallon. Within four years we have seen the price per barrel almost triple, the largest price increases since the late 70's!
So who, or what, is to blame? Just look around and you will find no shortage of finger pointing. You can blame big oil companies, the war in Iraq, Bush, China, OPEC, and a number of others targets bearing the blame in one form or another.
It's easy to blame the big oil companies. After all, ExxonMobil continue to report record profits of $39.5 billion in 2006, up 9 percent from the year before and $40.6 billion in 2007; the largest annual profit by a US company. Exxon's revenue last year allowed it to surpass Wal-Mart as the largest company in the United States. ExxonMobil wasn't alone. Shell saw profits grow 68 percent, to $9.03 billion. BP announced profits at 34 percent above last year, and ConocoPhillips saw revenue jump 43 percent. However, to place the blame squarely on big oil companies would be short sighted. After all, about 28% of the cost of each gallon of gas goes to the distribution and refining process and big oil companies only profit an average of $.07-.26 per gallon.
So how about the war in Iraq? Although oil production in Iraq still hasn't returned to pre-war levels of 3.7 million barrels a day, production has returned to 2.4 million barrels. That 1.3 million barrel difference isn't a huge factor in the worlds consumption of 86 million barrels a day. Price increases resulting from the war in Iraq have long since been absorbed, much like increases resulting from hurricane Katrina and 9/11.
Blame Bush? Blame the government? Well, as for regulating prices, the government has little to do with what we pay at the pump. The federal excise tax is 18.4 cents per gallon and the state tax varies by state, but averages about 24 cents. For every gallon you pump you pay about 42 cents in tax. The big oil companies make less per gallon than the government takes in tax. Also consider that the government has closed more than 24 refineries in the U.S. since 1995 and still struggles with drilling in Alaska where oil may be plentiful but environmental factors are still in debate.
It's all China's fault. Our most trusted newspapers tell us that China's "soaring demand," "insatiable thirst" and "quest for oil" are single-handedly responsible for the run-up in energy prices (though some people will also lump India into this argument). Chinese oil consumption has been on an amazing rise over the last decade, with its demand for petroleum increasing by more than 3.6 million barrels per day between 1996 and 2006. But the part of the story that is repeatedly left out is that over the exact same time span, U.S. oil demand rose as well, and our growth of imports of oil were even greater growth than witnessed in China's imports. Perhaps we're just angry because they didn't ask our permission first to buy "our" oil.
How about OPEC? OPEC accounts for two-thirds of the world's oil reserves and over 40 percent of the world's oil production. Most significantly, OPEC's oil exports represent about 70 percent of the oil traded internationally. This affords them considerable control over the global market. Its net oil export revenues should reach nearly $600 billion this year, and its influence on the oil market is dominant, especially when it decides to reduce or increase its levels of production. 50% of the cost of each gallon of gas you pump goes directly to cost of crude oil, that is, OPEC.
So, who do you blame? Any way you slice it, America is the number one energy hog in the world. If we want to find someone to blame for high energy prices, then it's time to take a good long look in the mirror.
