There are two big issues that people in the U.S. are concerned about today. I dealt with one of them a couple of weeks ago. And today I’m going to tackle the other one: high gas prices.
After a proposal to send every U.S. taxpayer $100 of next year’s tax refund in exchange for bending over and taking it got killed, you’d think people would have settled down about the gas prices. But they haven’t. I hear ranting every day about the evil oil companies price gouging and making windfall profits off us poor helpless consumers, and nobody’s doing anything about it.
There’s just one problem: The oil companies aren’t price gouging or making windfall profits. In fact, the oil companies’ profit margin is about the same as most other industries. Here’s what’s really going on and where the money is really going.
First off, let’s get rid of this windfall profits fallacy immediately. According to a statement released Wednesday by the American Petroleum Institute, the oil and gas industry isn’t making profits far out of line with any other U.S. industries.
“The latest data show that in 2005, oil and gas earned 8.5 cents on every dollar of sales compared to an average of 7.7 cents on the dollar for all U.S. industry. Over the last five years, the oil and gas industry’s earnings averaged 5.9 cents on the dollar compared to an average for all U.S. industry of 5.6 cents on the dollar,” according to the statement.
You might recall hearing that ExxonMobil reported $8.4 billion in profits for the first quarter of 2006, or about 27 cents per gallon of gas at today’s prices. What you probably didn’t hear is that the company is already being taxed much more than last year, 46 percent of that going to income taxes, compared to 39 percent last year. That’s why the company failed to meet analysts’ expectations.
The only real windfall profits here are for the tax man, not the oil man. In the U.S., the federal government collects a nice 18.4 cents per gallon in excise taxes, and every state collects taxes on top of that. Some states even have a tax per gallon and then a percentage of the sale price on top of that, and then throw in some more surtaxes just to make things more confusing and ensure a nice hefty revenue stream. At your expense, of course. And that’s why gas is so expensive in California.
So most states are actually making more per dollar for gas than the oil companies that brought it to you! And some of them want to keep it that way, such as the states which use mandatory minimum pricing to ensure that gas prices remain high. Hawaii experimented with this last year, with disastrous results. Minnesota uses mandatory minimum pricing, as do some other states. As you would expect, prices are higher and supply is lower in those places.
Then there’s the lack of refining capacity. No new refineries have been built in the U.S. since 1976, and in fact several refineries have been closed since then, further reducing the supply of gasoline and driving up gasoline prices. The environmental regulations, and the NIMBY principle, make it virtually impossible to build a refinery. The environmentalists, of course, claimed, right after Katrina hit, that the oil companies asked for the environmental regulations, and shut down their own refineries, to drive up gas prices. (And I was dumb enough to report it without checking whether it was true; and indeed, it seems patently ridiculous. Somebody go check on this and report back.)
So what’s the solution? Like everything else, the solution is less government regulation and taxation, not more. Unfortunately, our fearless leader miserable failure, who has promised to do something about high gas prices, is likely to make things even worse.
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Stephen Gordon
May 04, 2006
I’ve started writing on this several times now. I stop when I get to the actual tax rates for a price of gas.
It seems (based on only a few hours of research) that the corporations make around 9 cents per gallon profit, while the average federal tax rate is around 50 cents per gallon.
This does not include non-direct taxation (which I haven’t even started on).
If the Repubs were serious, they’d at least get rid of that roughly 50 cents per gallon.
forstand
May 05, 2006
Gasoline prices will continue to go up. Demand for gasoline and other fuels will continue to rise. People had better get used to it. And (gasp!) plan for it. Less driving, slower driving and more fuel-efficient vehicles will be a big help. George Jr. won’t mandate it but the size of people’s pocketbooks will.
Say an oil well is drilled when oil is $20 per barrel and the owner considers that he is making a good profit on his investment. Then when oil goes to $75 per barrel the oil well owner now can make an additional $55 in profit. But that will only last until that well runs dry. Who will make up the difference if oil drops below $20 per barrel? The owner loses money. At $75 the oil well owners have money to search for additional oil. At less than $20 they don’t.
Fortunately we are not seeing fuel shortages like we had in the ’70s when OPEC cut off the supply of oil to the US. I remember scrambling for gas then. I had a truck with a plate ending in an odd number and could only buy gas on odd-numbered days. I carried two jerry cans in those days. I don’t wish to repeat those days.
Jason
May 05, 2006
Whatever happened to drilling in Alaska?
Graeme
May 06, 2006
Go ahead – tax petrol like crazy. Oil supplies might just last longer, and so might the environment.
flashdance
May 07, 2006
Jason–good point. We should open up ANWR, the Outer Continental Shelf and the Rockies as far as I’m concerned–increasing supply and reducing our dependence on foreign oil seems like the logical and prudent thing to do.
May 07, 2006
The news just keeps breaking - Homeland Security or Homeland Stupidity
May 08, 2006
MacManX.com » Blogroll Dive: 5/8/06
inkstain
May 08, 2006
Graeme, but further taxation would drive prices even higher. I don’t think the average consumer can afford that additional burden. I know I can’t.
Nunzio
May 08, 2006
Look what happened when oil from the North Sea came on line. It helped drive the price of gas down even though the total amount wasn’t enough to solve all our energy needs. Just the fact that there was another source of oil available outside OPEC’s control was enough to drive speculation downward. I think the same would be the case if ANWR were brought up to speed.
Mary
Feb 02, 2007
Alternative energy source is on my mind. I’m not sure we will get any initiative for research on the federal level, alternative energy might impact Pres GWB bottom line.
Joe young
Mar 07, 2007
We are headed into a recession because nobody can afford to go anywhere and buy anything. I use to go alot and spend. Now, i dont go anywhere period. I walk to work, and thinking about buying a Horse. We are going backwards definatly not forward. Im pissed
Joel S.
Jan 09, 2008
I have an idea that will help gas prices go down a bit. Lets stop buying H2′s with 8MPG and Yukons with 14 MPG. Honestly the oversized SUV has become the new soccer mom car. If you need the power and size for something then fine but I worked in a gas station in the past and I have no pity for someone complaining about how much gas costs for there Suburban when all they do is drive to the office and back and pick up the kids with it.
GlenGary
Jan 10, 2008
Gas isn’t going up per say, the value of your money is going down on gas, on food, on utilities, on healthcare and on everything. Blame the Federal Reserve Policies for that. Our dollar is down against most major currencies so DUH it costs more for oil… the oil folks won’t continue to sell oil cut rate by accepting a dollar that has depreciated 30% or more since around 2004.
On a 2004 Dollar the oil price would be around $67 this week.
Next, we are at war in an oil region which causes a danger to supplies premium. The other factor is India and China fielding more cars therefore more demand. We gave them our jobs, we gave them our money, they got richer and bought cars. Funny how that works.
Next, I see it all the time. Folks run for stuff constantly without thinking about conservation of fuel and time. Combining trips? Most folks balk at that. Car pool? No No…I like to drive alone. Rush hour-single drivers in empty cars by the millions in America.
Every pickup truck and SUV out there eats more gas than the drivers need. I see pickups at 4-5 years old with no wear to the cargo bed-meaning the truck was never really used. Macho-vanity-what?
It’s always someone else when there are problems in anything and less likely us.
Every time gas drops I see more cars on the road eating up the surplus forcing the price right back up. Around and round we go being stupid.
If you had to, and this spring if $3.50 gas bothers you, you’d be surprised how you’ll work on saving gas.
In my income range retired with all kinds of free time, living 5 miles from any commercial enterprise-one mile off of any road not called my cow path through the field, from Nov to late March, I consume 12 gallons or less a month-about 325 miles worth, sometimes my car does not move for two weeks and I’m 54, not 80. I can afford all the gas I want but I balance my needs to conserve for the good of the country. The common good.
Sometimes I wonder why I care at all when I see obvious hogs.
GlenGary