Why Are Gas Prices Still So High? 30 comments
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I'm sure most of you still remember well the near-crisis recently experienced in the US - with regard to oil/gas prices. From early 2007 through mid 2008, oil skyrocketed in price and eventually peaked out at ~ $147bbl in July 2008 - then it fell off a cliff -- due to a myriad of issues: (1) Oil Market Manipulation (2) A significant drop in global demand and (3) A stronger US Dollar.
Crude Price Chart (click to enlarge)
During that swift run-up in crude, gasoline here in Las Vegas correspondingly (and swiftly) rose in price - eventually peaking out at $4.26 a gallon. It then took a while after the collapse in oil price for gasoline prices to drop, and then there always seemed to be a significant lag between the two on the way down - eventually however, gas fell and bottomed at a low of ~ $1.70 a Gallon.
Vegas Gas Price Chart (click to enlarge)
What is disconcerting of late is the recent $.50 rise in gas prices over the last month, while oil prices have remained relatively steady and are still dragging along the bottom at ~ $38bbl.
Stated differently: Oil prices are currently 26% of what they were at the peak ($147/38 = 25.8%), yet gas prices (what I'm paying today) remain at 52% of the peak price ($2.21/$4.26 = 51.8%). It just doesn't make sense and I believe somebody here is getting gouged - YOU & ME!
So what's going on here - why the disparity?
According to AAA’s Windy VanCuren:
The reason gas prices have been increasing in the past few weeks is "because gasoline refiners have been severely cutting back their output of gasoline either by design or due to 'maintenance and operational issues'.“ VanCuren adds: “Industry watchers who trade gasoline trade futures seem to be persuaded the industry will eventually be able to cut the nation’s gasoline inventories enough to keep retail prices at an elevated level.“ Basically meaning they expect the law of supply and demand to swing prices higher as supplies of gas shrink.
Whatever! Sounds to me like a cheap way for the gas/oil refineries/companies to increase their profit margins - once again at the expense of the little guys who are losing their jobs, homes, cars and can barely afford to put food on the table for their kids.
Absolutely disgusting! This corporate bloodsucking (with governmentt backing I'm sure) has got to end! Need to wake up Sheeple!
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So until we find the best, financially efficient replacement, oil is it. Live with it.
However, ploiticians will likely come to the rescue by raising taxes on gasoline with the opportunty of blaming oil companies for price increases !
In the 2nd Qtr of 2008, gasoline prices were $3.98 per gallon. This breaks out to the following:
$ 2.94 Cost of Crude Oil 74%
$ 0.47 Federal and State Taxes 12%
$ 0.22 Distribution and Marketing 5%
$ 0.35 Refining Costs and PROFIT 9% (yeah, that EVIL PROFIT)
Now, assume oil prices were $147/bbl then and they are $38 now, that's a 75% reduction in the cost of crude oil. So reduce that $2.94 cost of crude oil to $0.74. That leaves your cost of a gallon of gasoline at $1.78 per gallon. That assumes the profit and refining costs stay the same.
So you see, you can't just juse the proportional reduction of crude oil and expect the EXACT SAME proportional reduction in gasoline prices. That's a foolish assumption for someone who has the least amount of economics education! There are costs built into the price of gasoline that do not fall as a result of the fall in crude oil prices.
Also note that our governments make much more on a gallon of gasoline than the evil oil companies!!! Note that the 9% for oil companies includes the cost of refining the product and the profit and I can tell you, the cost to refine is quite high so the profit is in the mid to low single digits.
You want to complain? Complain to the government hogs that are sucking your dry.
Also note with today's labor costs and taxes, even if the crude oil is free, the cost of a gallon of gas is $1.04. Again, almost half of that is taxes!
It's like green stamps or coupons. Its purpose is to get you into a store to buy products with a good profit margin. There is more profit in a six pack than a tankful of gasoline.
If gasoline wasn't cheap, the average driver would not be wasting 25-40% of it with their bad driving habits.
When prices fall, the refiners have high priced inventory that was purchased in the previous month(s) and so they must work off that higher priced inventory. Once that inventory is replaced with lower priced crude oil, then prices go down.
Not really that different from how a grocery store runs its operation.
The biggest and quickest way for consumers to impact prices is to STOP USING THE PRODUCT! That decrease in demand will lead to a decrease in prices. That's exactly what is happening today. You control your expenditures!
On Feb 19 12:25 PM Sheepman wrote:
> When Oil prices rise gasoline prices rise immediately at the pump.
> Maniplutation? Analysts said no. Oil prices dive and gasoline prices
> stay or rise. Maniplutation? Analysts still say no. When are the
> consumers going to wake up and protest to the highest office?
You get the government you elect. Next election seasons of 2010 and 2012, conduct your due dilligence in addition to micro-managing the diminishing returns of your porfolio.
A lot of gasoline is sold in the US.
Why would the government stop a good thing?
There are so few of them because it is prohibitively expensive to make a new refinery.
This is because of the same reason it is prohibitively expensive to make a new nuclear power plant: the myriad of "environmental laws" which must be overcome, and the fees which need to be paid.
These environmental laws were enacted by politicians you voted for.
Look in the mirror, the enemy is you.
You were really unloading some frustration there. Do I sense you drive alot? Do you live FAR from work? In the next town?
Maybe you need to think about moving closer to work? Or get another job? Or ride a bike to work more often? Or take public transportation?
I mean, besides empty venting, there are solutions aplenty.
So oil companies are only a part of the equation as to why you are getting ripped off. The best solution is to cut back on demand and call your elected officials. That or vote to pass some sort of anti-lobbying and election finance reform. You also may wish to allow your region to let more refineries be built. So bar NIBY (not in my backyard) action has prevented building a single new refinery in most every state for decades.
The problem is persistent and endemic structural barriers to competition and decent pricing.
PS: I do not own any oil stock and don't work for the oil companies. I just am trying to let people know the rational problems of making the gasoline price more competitive. I still get infuriated that oil is $35-140 a barrel and you get more than $140 gallons of gas from one yet look at the price. And that doesn't even include the jet fuel and petrochemical value of that barrel. As is, the price has little to do with the cost of barrel of oil.