Gas station price gouging. Unrest in the Middle East. Big Oil greed. Traditional supply and demand. Top-secret governmental con jobs.
Few issues spark more public outcry, investigative reports, and conspiracy theories than the ever-changing price of gasoline, which seems to fluctuate on the hourly whims of a drunken oilman from Texas.
Yet because our country is intoxicated on oil consumption (accounting for 25 to 40 percent of the world’s demand), we are held hostage by several factors that determine gasoline’s cost. And its value to a culture drowning in strip malls, distant suburbs, gas guzzlers and lazy motorists.
“Generally, the cost of oil is, well, slippery,” said John Kennedy Jr., assistant professor of economics at Saint Joseph’s College in Rensselaer. “It is a commodity, like corn. The oil market has its own peculiar characteristics but, in the end, it’s a market — demand and supply.”
First and foremost, gas prices are primarily caused by changes in the international price of crude oil.
“Nearly 50 percent of gasoline pricing is tied to oil, which is trading right now at the highest prices we’ve seen in years,” said Beth Mosher, spokeswoman for AAA Chicago Motor Club.
This past week, the cost of a barrel of crude oil rose to $109, the highest since September 2008. Not coincidentally, the record high gas price for the Chicago metro region was $4.34, in 2008, and experts suggest it could hit that mark again by Memorial Day, if not sooner.
Average gas prices last week in Indiana hit $3.82, up 23 cents from a week earlier.
“There is a world market for oil, and consumers in the U.S. pay the world market price,” Kennedy said. “We’d pay this same price even if the U.S. was producing all of its own oil. The difference would be in who gets the profits from drilling and selling it.”
U.S. companies would not sell us oil at a cheaper price than they could sell it to, say, the Chinese. “That is not how markets work,” he noted.
A lot of taxes
Other key factors, according to the U.S. Government Accountability Office, include:
Federal and state requirements calling for special gas blends to improve air quality.
Seasonal factors that affect demand and supply.
Refining costs and profits, as well as distribution and marketing costs and profits.
Changes in taxes levied on gas, and changes within the petroleum industry, such as mergers and drilling.
And, of course, taxes. A lot of taxes.
“About 25 percent (of the gas price) is tied to taxes,” said AAA’s Mosher, noting Indiana and Illinois use a percentage-based sales tax, meaning as gas prices rise, so does the amount we pay in taxes. “Not all states have this and it is certainly what contributes to our higher prices.”
These taxes do not account for additional local and county taxes, which many municipalities also levy as a revenue generator.
In Indiana, motorists pay 55.6 cents per gallon in overall taxes, including federal, state, and other excise and sales taxes, according to AAA calculations. The U.S. average is 48.1 cents per gallon.
“The big truth about gas prices is that the government (plays a role) on the revenue in taxes,” said Gary Brubaker of Portage, general manager of a home health company who drives to LaPorte three times a week. “Look at what they are taking in now, and they have the audacity to blame big oil for high profits. Who is profiting?”
Mosher said there’s more profit for gas stations in the items they sell than in the gas they pump. On average, refining costs and profits make up roughly 17 percent of the pump price for regular gas, according to the U.S. Government Accountability Office. And the costs and profits associated with distribution and marketing are about 12 percent.
Despite this complex breakdown of pricing, it’s difficult for many of us to understand how, say, a nation such as Libya, which supplies to us very little oil, plays a role in our higher prices.
“Despite the facts, there are some for who gas gouging will always be the most convenient explanation,” Mosher said.
I agree completely. Then again, is she simply part of the conspiracy?