Gasoline Economics 101 (part 1 of 5)
GASOLINE ECONOMICS 101
What opportunists on the left don’t know about economics could fill textbooks…in fact, it does. They should try learning and applying Market Based Economics and reading some texts.
As the above illustration shows, Government, via taxes, accounts for as much and often more than Refining Costs and Profits in a gallon of gasoline sold at the pump. Yet, possibly most interesting, is that while in the early 1980’s most of the nations 350 refineries were owned by Oil Companies like Exxon, Shell, Hess and Mobil, today’s 153 refineries are own mostly by independent Refiners, not the large Oil Companies.
The Supply and Demand of Gasoline is largely an independent variable, uncontrolled by Oil Companies and subject to international political situations, so says the US SENATE REPORT found here…http://www.senate.gov/~gov_affairs/042902gasreport/sectioni.pdf
So what goes into the Supply of gasoline, let us discuss that because you understand the demand (just look at India and China, or the interstate).
Of course, you understand that the largest supplies of Crude Oil are in the Middle East and Russia, so international politics play a heavy role. While we do get 60% of our Crude from our hemisphere, we are still dependant upon the Middle East and OPEC. While Canada and Mexico are our most prolific suppliers, Venzuala also is a bigger supplier adding to our woes.
Yet despite this, the flow of Crude has remained very consistent. Though is adds to the price fluctuation of Crude on the market, it is but the first step. Crude must be refined into Gasoline and this has been a variable of great concern since the mid 1980’s. It was during this time the Major Oil Companies divested their interest in Refineries and reduced the number of operational refineries from 350 to 153 domestically.
We can produce roughly 17 Million barrels a day in the US, while our consumption is about 22 million barrels putting about 5 million shy of production. This puts us at the flux of the market.
This reduction has had a major impact on supply mainly as a response to the associated costs to refiners when Windfall Profits Taxes were pushed into law by Jimmy Carter and a Democrat Congress. When it became less profitable to manage a refinery due to taxes and this was coupled with Environmental interference, the Major Oil Companies found there way out of the refinery business. Though most of these companies still own some of the most profitable facilities, a large number are operated by other than the so-called Big Oil.
Ultimately this constriction in refining capacity has placed pressures upon the industry that have been exploited by natural disasters and geo-politics in recent years. Regular maintenance, Specialty blends due to regional and state requirements and home heating oil also play significantly into the overall supply at various points during the year. These variables have placed the greatest pressure in recent years exacerbating the general tightening of supply in the US.
While we have allowed politics to add another ingredient into the supply side of this equation environmental concerns have remained steady. The most recent addition to variables has been the government requirement to move away from the chemical additive and more heavily to ethanol. The ethanol replacement has taken up valuable storage that the additive had not.
Finally, with all the factors involved in production and refining of gasoline, it remains rather interesting that while the overall cost has gone up what appears to be like a rocket, the reality of the price as adjusted for inflation is rather flat(see chart below).
What remains to be done is to convince the left that speaking about energy independence while at the same time preventing the utilization of known and likely reserves in ANWR and OCS is disingenuous. We must build independence by utilizing those reserves we have in our midst.
We must understand that allowing ourselves to be fooled by those who would rather play politics with the costs associated with Gasoline and blaming these costs on excessive profits are playing the very worst game imaginable. It does not require a PHD to see that Government at both the Federal and State levels earn via taxes, often twice as much as Oil Companies off the same gallon of gas, without any of the risk.
Floridians pay about 51 cents in taxes while New Yorkers pay over 60 cents. Taxes are levied on every gallon of gas, irrespective of whether the companies involved were successful enough to make a profit or not. In the 1980’s when refining took the profit out of a gallon of gas, these taxes continued, even while the companies lost money.
So I ask you, who is doing the gouging?
Government Taxes and political opposition to developing domestic production capacity via ANWR and the regional waters off our coasts are our biggest gougers. They tell us we cannot become independent but tax us and blame Oil Companies to boot.
The time has come for American’s to wake up to energy politics. Learn the process by which we drive the open road, travel to Grandma Annie’s, and visit the ball park.
Part 1 of 5…
What opportunists on the left don’t know about economics could fill textbooks…in fact, it does. They should try learning and applying Market Based Economics and reading some texts.
As the above illustration shows, Government, via taxes, accounts for as much and often more than Refining Costs and Profits in a gallon of gasoline sold at the pump. Yet, possibly most interesting, is that while in the early 1980’s most of the nations 350 refineries were owned by Oil Companies like Exxon, Shell, Hess and Mobil, today’s 153 refineries are own mostly by independent Refiners, not the large Oil Companies.
The Supply and Demand of Gasoline is largely an independent variable, uncontrolled by Oil Companies and subject to international political situations, so says the US SENATE REPORT found here…http://www.senate.gov/~gov_affairs/042902gasreport/sectioni.pdf
So what goes into the Supply of gasoline, let us discuss that because you understand the demand (just look at India and China, or the interstate).
Of course, you understand that the largest supplies of Crude Oil are in the Middle East and Russia, so international politics play a heavy role. While we do get 60% of our Crude from our hemisphere, we are still dependant upon the Middle East and OPEC. While Canada and Mexico are our most prolific suppliers, Venzuala also is a bigger supplier adding to our woes.
Yet despite this, the flow of Crude has remained very consistent. Though is adds to the price fluctuation of Crude on the market, it is but the first step. Crude must be refined into Gasoline and this has been a variable of great concern since the mid 1980’s. It was during this time the Major Oil Companies divested their interest in Refineries and reduced the number of operational refineries from 350 to 153 domestically.
We can produce roughly 17 Million barrels a day in the US, while our consumption is about 22 million barrels putting about 5 million shy of production. This puts us at the flux of the market.
This reduction has had a major impact on supply mainly as a response to the associated costs to refiners when Windfall Profits Taxes were pushed into law by Jimmy Carter and a Democrat Congress. When it became less profitable to manage a refinery due to taxes and this was coupled with Environmental interference, the Major Oil Companies found there way out of the refinery business. Though most of these companies still own some of the most profitable facilities, a large number are operated by other than the so-called Big Oil.
Ultimately this constriction in refining capacity has placed pressures upon the industry that have been exploited by natural disasters and geo-politics in recent years. Regular maintenance, Specialty blends due to regional and state requirements and home heating oil also play significantly into the overall supply at various points during the year. These variables have placed the greatest pressure in recent years exacerbating the general tightening of supply in the US.
While we have allowed politics to add another ingredient into the supply side of this equation environmental concerns have remained steady. The most recent addition to variables has been the government requirement to move away from the chemical additive and more heavily to ethanol. The ethanol replacement has taken up valuable storage that the additive had not.
Finally, with all the factors involved in production and refining of gasoline, it remains rather interesting that while the overall cost has gone up what appears to be like a rocket, the reality of the price as adjusted for inflation is rather flat(see chart below).
What remains to be done is to convince the left that speaking about energy independence while at the same time preventing the utilization of known and likely reserves in ANWR and OCS is disingenuous. We must build independence by utilizing those reserves we have in our midst.
We must understand that allowing ourselves to be fooled by those who would rather play politics with the costs associated with Gasoline and blaming these costs on excessive profits are playing the very worst game imaginable. It does not require a PHD to see that Government at both the Federal and State levels earn via taxes, often twice as much as Oil Companies off the same gallon of gas, without any of the risk.
Floridians pay about 51 cents in taxes while New Yorkers pay over 60 cents. Taxes are levied on every gallon of gas, irrespective of whether the companies involved were successful enough to make a profit or not. In the 1980’s when refining took the profit out of a gallon of gas, these taxes continued, even while the companies lost money.
So I ask you, who is doing the gouging?
Government Taxes and political opposition to developing domestic production capacity via ANWR and the regional waters off our coasts are our biggest gougers. They tell us we cannot become independent but tax us and blame Oil Companies to boot.
The time has come for American’s to wake up to energy politics. Learn the process by which we drive the open road, travel to Grandma Annie’s, and visit the ball park.
Part 1 of 5…
posted by Tom Gaitens at 6:35 AM
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