Mystery of High Gasoline Prices

May/04/2011 18:19PM
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A headline in my paper was: Mystery of High Gasoline Prices. The subsequent article was inane and uninformed. Why is it that the media and the politicians always get it wrong? Is it intentional or ignorance?

Let’s examine the question and you make the call.

Ethanol adds to high gasoline prices. Who dictates that? Our government. Bush set percentage requirements for ethanol. Not only does this add to gasoline prices but it adds to food prices. Over 40% of our corn crops now go to ethanol. You hear of spring gasoline blends adding to prices? That is mandated by your government. It was established when cars did not have knock sensors. For twenty years cars have not needed spring gasoline blends. But, they go on because ethanol is the only way to meet the requirements.

No new refineries have been built for 40 years. We import 20% of our gasoline. If imported gasoline is cheaper than domestic refined product, that percentage goes up. If imported gasoline is higher, domestic product meets that prices. Otherwise, domestic gasoline is exported. Any rational business would do the same. Government requirements have prevented any new refinery construction.

Domestic drilling has been off and on for years. Obama’s moratorium in the Gulf has cut domestic supply adding to supply shortages. He is not being truthful when he says domestic supply in the Gulf is up. There is a significant lag between putting out leases and production. That lift came from Bush. This is your government involvement in the oil business restricting domestic supply.

At current crude oil prices, the cost of crude is roughly $3 a gallon. You don’t get a barrel of gasoline for a barrel of crude. With Canadian crude that can be a low as 60%. Without cokers to handle the heavy crude, you get a lot of low value products like asphalt. Hence, that crude price translated with this discount may be closer to $3.40 a gallon. You have transportation costs to get the crude oil to the refinery.

Taxes add from 20-35 cents a gallon. Now you are up to $3.75 a gallon. This is your government taking taxes off the top of your bill at the pump. You are up to $4 a gallon.

Refining margins of 10-15 cents add to this. Transportation costs to terminals add another 2-3 cents. Transportation from a terminal to a retail outlet add another 2-3 cents. Retail margins of 10 cents finish the cost structure. There is your mystery. It adds to $4.24 to $4.31 cents a gallon. Regular grade, of course. And that cost may vary by area based on transportation costs and taxes.

This country has zero control over crude oil prices and it shrinks every year. As people in China, India, and Brazil park their bikes and buy cars, demand goes up dramatically. The hated US oil companies, like Exxon, Chevron, Conoco are divesting of US assets. Refineries, retail outlets, terminals, pipelines, and crude production is going on the block. This is a hostile environment for the industry. Next, the headquarters will be moving to avoid paying taxes on total income when less than 25% comes from the US. Obama’s tax increase will be a tax decrease if that happens. Plus, the tax will go right on the pump.

There is no mystery to high gasoline prices. None of the billions the Department of Energy has spent over the past 25 years has gone to reduce gasoline prices. Nor, has it produced much in any area of alternative energy.

Like most problems we face in this country, high gasoline prices stem mostly from government. With help from a complicit media, that has spun a story for 25 years that the government has zero accountability for the problem.

Through regulation, denial, restrictions, and bad judgment, your government has created a large part of the problem. Soon, it will be $100 to fill your tank and Washington will holding useless hearings, placing false blame, and wreaking more havoc on the economy.

The real mystery to me is your willingness to accept misplaced blame and ignore common sense. You had better get over the blame you continue to accept about destroying the planet and put the guilt back where it belongs. Those who want greater power over every aspect of your lives. Those who contribute nothing to solve the problem. Give them back the blame and guilt they so richly deserve. If they get out of the way, your gas prices will go down.

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