Oil Prices

Posted By Elgin Hushbeck

Well summer is just about here and once again oil prices are high. As I have said for many summers now, it is a systemic problem that will only get worst until we stop trying to blame the big bad oil companies, and actually decide to fix the problem. Unfortunately the environmentalist, do not want us to fix the problem. For many years they wanted high gas taxes, but not too surprisingly were never able to get the support of the American people. So instead they have simply imposed greater and greater restrictions that are having the same effect.

The June issue of the National Geographic has an interesting article on oil. It has a chart that breaks down the price of oil. The chart is based on $1.57 average price. At that price $0.15 (10%) goes to distribution and marketing and $0.24 (15%) to refining. So a total of $0.39 (25%) goes to the oil companies out of which they have to pay the cost of distribution marketing and refining, and still have some left over for profit. $0.75 (48%) goes for the cost of crude oil. The remain 27% is State and Federal taxes, and this is based on a National average of $0.43 per gallon. However it varies form state to state with Alaska being the lowest at $0.26 and Hawaii being the highest at $0.54.

As this points out, the biggest factor in the price of oil is the cost of crude oil, which is currently at or near an all time high. But his is set by the world market and influenced by OPEC, and other producers. The Oil companies have little control over this. The second biggest factor is taxes, which exceed the other remaining costs combined. The rest only makes up 25%.

So does it really make much sense to year, after year, after year, after year, after year, to continue of focus on the oil company profits as the reason for the rise in oil prices, when their profits amounts to pennies on the gallon, where as the government is making $0.43 per gallon?

The solution to the oil problem is really pretty simple. Sure conservation is an important part, but is not the complete answer. We must also drill for more oil and builds more refineries. This will improve the supply, weaken the effect of OPEC and thereby keep the price of crude at reasonable levels. As for refineries we have not built one in 30 years and the ones we have are running 96% capacity, which is essentially full time. This is why prices spike when ever there is a fire. More refineries will ease the pressure on the system and allow it to be more flexible, thus avoiding major price spikes due to disruptions, such as last year went prices went to $3 – $4 a gallon in Arizona.

Unfortunately it will take a lot of time to do it in an environmentally safe way. For example it is expected to take 10 years to bring AWAR on line. Had the environmentalists not blocked it, it would already be open and easing the current situations.

May 28th, 2004

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