With U.S. gasoline prices having climbed nearly 30 cents in the past month, pushing the national average to $3.87 a gallon, according to the Energy Information Administration, consumers (and by extension voters) are beginning to voice their concern.
A recent Gallup Poll finds that one in four Americans feel gas prices will shoot up to more than $5 a gallon during 2012
This all bodes ill for President Obama as he prepares to clash with the presumptive Republican nominee Mitt Romney during the long hot summer. In a fragile economy with unemployment still over 8 percent, a sharp rise in gas prices makes it all the more difficult for Mr. Obama to defend his domestic policies and convince voters to keep him in the White House for another four years.
With excessive gas prices causing many to cancel vacation plans, while seeing their weekly budgets squeezed just to fill up their tank, many Americans not only are mad, but they want answers.
Who's to blame: greedy oil companies, President Obama, a do-nothing Congress, unrest in the Middle East?
After looking into this, here is what I found were the most common reasons cited by industry experts for the high price of gasoline at the pump.
What Determines the Price of Gas at the Pump?
• The biggest factor is the cost of the raw material used to produce the gasoline – crude oil. That price has been between $105 and $120 a barrel, depending on the type of crude oil purchased.
• At these prices, a standard 42-gallon barrel, then, translates to $2.50 to $2.85 a gallon at the pump.
• Excise taxes add another 49 cents a gallon on average nationwide.
• So the price for gasoline is already at $3.00 or more per gallon even before adding the cost of refining, transporting, and selling the gasoline at retail outlets.
• Taken together, crude oil costs and taxes account for more than 85 percent of what people are paying at the pump. That leaves just 12 percent for the refiners, distributers, and retailers.
Why does the price of gasoline vary by state?
• The amount of gasoline taxes collected by states can vary widely, from as low as 26.4 cents per gallon in Alaska, to a high of 67.4 cents per gallon in New York.
• The average nationwide tax collected on each gallon of gasoline sold at the retail station is 48.8 cents; of that, 18.4 cents per gallon goes to the federal government with the remaining ending up in state and local government coffers.
Estimating the costs of gasoline at the pump
• Crude Oil: 76 percent
• Excise Tax: 12 percent
• Refining: 6 percent
• Transportation Retailing: 12 percent.
Source: Energy Information Administration (EIA)
How Do the Oil Industry Profits compare to other industries?
• Based on company filings with the federal government as reported by U.S. Census Bureau and Standard & Poor's Research Insight, the latest data for the third quarter of 2011 shows the oil and natural gas industry earned 6.7 cents for every dollar of sales, compared to 9.2 cents for every dollar of sales for all manufacturing. Other sectors, such as the pharmaceutical, computer and the beverage and tobacco industries, earned three times that and more.
Are oil companies driving up gas prices by not building new refineries?
• Oil companies do not set the price of gasoline. Crude oil is the primary component in gasoline production, the price rises and falls with the cost of crude, which is set by supply and demand on the global commodities market. In addition, industry experts emphasize weather events, inventories, exchange rates, investments, spare capacity, production decisions, and supply growth, all of which factor into the price of crude oil and thus—gasoline prices.
• Another thing to keep in mind: Even though no new refineries have been built in the United States in the last 35 years, major investments in existing refineries during this time have increased their capacity by 13 percent while improving worker safety, efficiency, environmental performance and refineries’ ability to produce high-quality products.
• In addition, The United States has the largest refining capacity in the world—U.S. capacity is 17.7 million barrels per day from 148 refineries, according to the Energy Information Administration (EIA) 2011 Refinery Capacity Report. The report estimates U.S. refining capacity accounts for 21 percent of global capacity—almost doubles that of the second-largest refining country, China, which has 9.4 million barrels per day of capacity.
• Contrary to popular belief, the refining industry remains one of America’s largest manufacturing sectors—more than 50 companies own and operate refineries in 32 states.
Which countries are we most dependent on for our supply of oil?
The U.S. produces 51 percent of all the oil and petroleum products we consume. The rest is imported, largely from our neighbors in North America with Canada representing the largest supplier to the U.S., accounting for 25 percent of our imports compared to 12 percent for Saudi Arabia.
Does the value of the dollar affect the price of gas?
According to analysts from the American Petroleum Institute, the value of the U.S. dollar against other countries around the world means that American consumers are more affected by rising crude oil prices than the citizens of other countries that use currencies like the Yen but less than those who use the Euro. As oil prices have gone up all around the world, the price increase has been less for countries who have a strong currency other than the U.S. dollar, but more for those who don’t.
Source: American Petroleum Institute
Fuel Saving Tips:
• Easy on the pedal: the faster you drive, the more gasoline your car uses.
• Your air conditioner reduces fuel economy by as much as 2 miles per gallon; so it's advised you use it sparingly.
• Avoid traveling during rush hour; combine several trips for errands into one; and consider car pooling.
• Make sure your tires are properly inflated; underinflated tires can decrease fuel economy by up to one mile per gallon.
• Avoid abrupt starts, otherwise known as jackrabbit starts; because they require twice as much gasoline as gradual starts.
• Regular tune-ups can improve fuel economy by an average of one mile per gallon.
March 22, 2012
Source: American Petroleum Institute
Web Sites to Keep in Mind: