Gas Prices

I’ve not really commented on it because it doesn’t really affect me that much. I set aside $90 per paycheck for gas way back when I bought my new car. Before that I was putting away about $45 per paycheck. The old car could do 33 and the new one did 25, and I anticipated the prices going up and budgeted it in advance. Right now I’m using most of the gas budget.

IE my views may be skewed by the fact that I anticipated it and am not really bothered by it.

But really, I see all this noise being made in washington about high gas prices… it baffles me. Both parties are complaining and neither are really coming up with a solution that works. Even Bush is tilting at windmills on this one.


I guess I’ll break down some of the proposals on this. First, they’re asking for an examination on if there’s “price gouging” going on. People have already examined this looking at the cost of the factors going into fuel and discovered that at the current prices of gas and oil, they’re probably making 7-8 cents per gallon. I don’t see that as price gouging when the taxes on gas are at least 20 cents nationwide. (I’ve heard values as high as 70 cents for some states.)

Then there’s the “Windfall Profits Tax.” There’s actually a larger issue of unfair taxation here as well across the board. They tax the gas itself, then they tax the profit for the company, then they tax the payroll money they give their employees. (They also then tax the employees themselves and then tax the money the employees spend.) Now they want to throw an additional tax on top of that! It’s a wonder private companies have any money at all after all that. And who will end up paying the windfall profit tax? Well, it’ll be figured into the cost of gasoline. It’ll probably push the price of gas up another nickel. If the congress wants to decrease the cost of gas, this isn’t the way to do it.

Not to mention that the figures they use for claiming they are getting a windfall profit are bogus. They have more overall profit, but that’s only because they shipped more gasoline than ever before (as is the case almost every year.) They also merged in a few smaller companies and now have their profit on top of their own. Their profit margin per gallon has actually gone DOWN since the prior figures were taken.

The biggest factor of the gas prices right now is the cost of the oil itself. At $75 per barrel, this calculates out to about $1.79 per gallon of gas. 60% of that money is going to foreign countries. This is a huge trade imbalance that really needs to be corrected. Along with the fact that it’s a trade imbalance, most of the countries we buy oil from are either actively or passively hostile to us. Brings new meaning to “When you buy gasoline, you support terrorism.” Personally, I’m waiting for Mustang Gas to setup a station in town. At least they always use US crude oil to make their gasoline.

There have been suggestions to reduce the gas taxes temporarily. Glenn Beck is really pounding on this one. While it’s an interesting idea, what do you think this will do to the supply and demand curve? Well, there will be higher demand. This will cause the stock to deplete faster. Because we’re running so close to maximum capacity on the refineries, the supply can’t go up fast enough to compensate. The price will eventually crawl back up as stations run out of gas and are resupplied with imported product at a higher price.

Drilling in ANWR, california, florida, and other places? Great! That’s a good long term solution to the problem. But it’s exactly that. Long term. It’d take at least a year for the crude oil to come in from a new drilling project. The amusing part is that the very people who complained about drilling in these 3 places are the very same people making such a fuss over gas prices now, and the same people who wanted gas prices to go higher to discourage SUVs back in the late 90’s. I guess they don’t see a correlation between supply and price.

Building more refineries? Great! Another long term solution to a problem. It’s just not going to take effect fast enough to change the gas prices before the election. Refineries would take at least a year to have an effect on the supply.

The only thing they could do that would immediately affect the prices would be the same thing they did after Katrina. Trim down as many of the specialized blends of gasoline for various cities in the country. This would have a couple of effects on the price. First, you wouldn’t have any supply imbalances where one place has more gas than it needs while another is nearing crisis level shortages and it would make it a full commodity market giving economies of scale. Second, distribution costs would be greatly reduced because you could just pick any nearby refinery for supply rather than relying on the 1 or 2 that meet your environmental specs. That would decrease the price in two ways. Firstly, it would trim the cost of actually moving the gas to the gas stations. Second, it would decrease how much fuel the transport trucks and trains use thus increasing the supply for the consumers. Much of the high prices in the north-east are currently due to a blend of gasoline that is new this year being in short supply.


Are the politicians going to take these long term and short term steps to actually improve the price? No. It’s too useful to play kickball with the oil companies and Bush. It would be negative politically for congress to actually solve the problem.