Liberally Conservative

"Freedom is never more than one generation away from extinction. We didn't pass it to our children in the bloodstream. It must be fought for, protected, and handed on for them to do the same, or one day we will spend our sunset years telling our children and our children's children what it was once like in the United States where men were free....... ~Ronald Reagan~

Wednesday, April 26, 2006

Bush's Day Off from Economic Realities

President Bush has joined the paranoid, deciding to tangle with the political explosive issue of gasoline prices by succumbing to Frist, Hassert and........Schumer! Instead of discussing free markets and explaining why gasoline prices are up Mr. Bush has decided to take the low road and dwell with the uneducated. It has become "duck for cover" and appeasement to congressional incompetents who make laws that enhance the energy problems.
As described here yesterday, Congress passed legislation taking care of the ethanol lobby that forces drivers to use 7.5 billion gallons annually of that oxygenate by 2012.
The politicians are ignoring the facts of global supply and demand. Investigations of price gouging have been done before to no avail. This current act of congress with Bush's support is nothing more than election year politics, while ignoring economics. Let's sort fact from fiction.
When you pump $20 dollars into your tank, that money is broken up into little pieces that get distributed among several entities. Gas is just like any other consumer product: There's a supply chain and several groups who are responsible for setting the price of the product. The media can sometimes lead you to believe that the price of gas is based solely on the price of crude oil, but there are actually many factors that determine what you pay at the pump. No matter how expensive gas becomes, all of these entities have to get their slice of the pie.
  • CRUDE OIL- The biggest portion of the cost of gas -- as of February 2006, that's about 59 percent -- goes to the crude-oil suppliers. This is determined by the world's oil-exporting nations, particularly the Organization of the Petroleum Exporting Countries (OPEC), which you will learn more about in the next section. The amount of crude oil these countries produce determines the price of a barrel of oil.
  • REFINING COSTS- The refining of crude oil makes up about 10 percent of the price of gasoline.
  • DISTRIBUTION/MARKETING - Crude oil is transported to refineries, and gasoline is shipped from the refineries to distribution points and then to gas stations. The price of transportation is passed along to the consumer. Marketing the brand of the oil company is also added into the cost of the gasoline you buy. Together, these two factors account for about 11 percent of the price of gasoline.
  • TAXES - Taxes, including federal and local, account for about 20 percent of the total price of gas in the United States. Federal excise taxes are 18.4 cents per gallon, and state excise taxes average 20 cents per gallon. There may also be some additional state sales taxes, as well as local and city taxes.
  • STATION MARKUP- In order to stay in business, service stations have to add on a few more cents to make a profit. There's no set standard for how much gas stations add on to the price. Some may add just a couple of cents, while others may add as much as a dime or more.

Taxes are probably the biggest factor in the different prices around the country. Additionally, competition among local gas stations can drive prices down. Distance from the oil refineries can also affect prices -- stations closer to the Gulf of Mexico, where many oil refineries are located, have lower gas prices due to lower transportation costs. There are also some regional factors that can affect prices. World events, wars and weather can also raise prices. Anything that affects any part of the process, from the moment the oil is drilled, through refining and distribution to your car will result in a change in price. Military conflicts in parts of the world with lots of oil supplies can make it difficult for oil companies to drill and ship crude oil. Hurricanes have damaged offshore drilling platforms, coastal refineries and shipping ports that receive oil tankers. If a tanker itself is lost or damaged, or leaks its oil into the ocean, that will put a dent in the market as well.

This explanation doesn't ease the pain but it is based on facts. The congress, as stated above, as contributed to the problem via legislation. Bush signed that law and he has jumped on board the political train going downhill!

Source: How Gas Prices Work

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