We all have heard the rhetoric about the price of gas….it is Obama’s fault…..we need to drill more…..American oil will bring the prices down…sorry, sports fans but NONE of that is true! At best it is just electioneering bumper stickers….but the American people are always falling for bullsh*t and why would this be any different, if anything it will get more traction because it effects most Americans daily…….
Let’s look at a few facts…….by 2006, the US was the 3rd leading oil producer in the world…..we are drilling so much that we have become an oil exporter for the first time since 1949 and oil production is up 10% since Obama is been the president….and NONE of that has brought the cost of gas down…..and now they want me to believe that more drilling will do that which it has not done in at least 5 years…..sorry asshats… I am NOT that gullible!
Gasomics 101: Drilling does not affect gas prices at the pump despite rhetoric
Gas prices are not a function of how much oil is drilled in the US versus how much is drilled in the world. Oil prices are set on a global level. Gas prices are the result of three factors: global price of a barrel of oil, state and federal taxes, and gas supplies coming out of refineries.
Impact of the price of crude oil
Since the US imports over 64% of its oil, the amount of oil produced domestically would have to double to the levels of 1970 which was1.2 million BPD to make any difference at all. It took nearly 40 years to decline to the levels under Bush. If it were even possible to produce that much oil in the US again, it would take years to ramp up production.
The cost of extracting a barrel of oil today according to the CEO of Exxon, the nation’s largest oil company, is about $60-$70 dollars a barrel or $0.65 cents a gallon. Oil is trading on the markets at over $100 a barrel—a 30% to 35% gross markup. Oil companies make a profit of 2-3 cents a gallon. Where does the rest go? A large portion goes to Wall Street oil speculators. Industry experts have estimated oil speculators increase the cost of gasoline by $0.75 a gallon.
Sometimes the price of crude oil increases due to production levels set by OPEC. Other times, it is affected by a disruption in oil supply. That was the case with the spikes in the 70’s. Neither of these are the case with this current increase. The Arab spring uprisings were the excuse for speculators driving up prices, but no disruption in oil production or shipping has actually occurred. This is an artificial increase in gas prices designed to put profits in speculator’s pockets.
Impact of gas taxes and taxes on oil companies
The federal excise tax on gasoline is 18.4 cents a gallon—the same as under George Bush. States add taxes ranging from a low of 8 cents a gallon in Alaska to 31.9 cents a gallon in New York. Gas taxes do not move with the price of oil or the price of gas.
Oil companies and their apologists blame taxes for high prices. Truth is, oil companies have so many write offs and subsidies, they actually pay almost no federal tax.
Impact of refineries
A very large portion of the cost difference between crude oil, and price of gas is the cost of refining it. Previous increases were the result of a reduction in refining capacity. Hurricane Katrina damaged oil refineries in the gulf reducing capacity. Fires at refineries also cut capacity. None of that is occurring now. Gas supplies are normal.Are the President’s policies to blame for current gas prices?The actual answer is that gasoline prices are not really affected by any policy of the Obama administration. Domestic production is increasing, not decreasing.After a short moratorium on drilling in the Gulf after the BP disaster, permits for new deep water oil wells are being issued. The recent Exxon discovery was from a well permitted after the BP moratorium was lifted. The President announced a week ago new policies to speed up domestic oil production even more.It is an election year, and Americans are hurting from high gas prices. It creates a convenient opportunity to blame the public’s misery on the President to win votes. The facts do not support this rhetoric, but in political speeches, facts seldom come into play. Production declined under every Republican President and Republican Congress since Nixon.
Speculation, my friends! There is your culprit, not anything any president has done or said. But by all means, vote for the biggest liar and your gas will be $2.50 a gallon as soon as he/she is elected……..and by the way, as long as you are buying bullsh*t…..I have a bridge in Brooklyn I would like to sell you……
You want to spend less on gas? Here is an idea……..STOP buying and driving gas guzzling monstrosities just to impress your neighbors….mindless consumerism is just as guilty of raising gas prices as anything…..
Excellent post Dr. Chuq and information that needs to be iterated as much as possible.
Thanx Larry I appreciate that……I try to get it outthere as much as possible….but you know there are some that do not want to hear….
Let’s look at a few facts…….by 2006, the US was the 3rd leading oil producer in the world…..we are drilling so much that we have become an oil exporter for the first time since 1949 and oil production is up 10% since Obama is been the president….
This is a distortion of the truth, Lobotero. Oil that is imported and then refined in the United States is then exported, so is talled under exports. But that’s a distortion of the facts because it wasn’t our oil to begin with.
Gas prices are not a function of how much oil is drilled in the US versus how much is drilled in the world. Oil prices are set on a global level. Gas prices are the result of three factors: global price of a barrel of oil, state and federal taxes, and gas supplies coming out of refineries.
Part of this is what I call the rub. If we establish a North American oil market, the price we pay would not be subject to the whims of the global market, Iranian threats, or general unrest in the Middle East. But in order to ensure that American oil stays in America, you’d have to nationalize the oil companies, because you can’t force a private company to only sell it’s product in the United States, at least not without violating the Constitution.
I suppose that if you opened up Federal land for drilling, you can set a requirement that any oil retrieved must be kept within our borders. But first you’d have to open up Federal land for drilling. Now I know the Left likes to say that domestic oil production has increased under President Obama, but that’s misleading, since most of that drilling is being done on private land, of which President Obama has no control.
I don’t doubt that President Obama has no real control over the price of gas. But I don’t think his aversion to drilling is useful, especially since the alternative technologies he hails as the greatest thing since sliced bread have been unable to withstand the test of the market.
Terrance we can tap dance this for ever…the truth is the more drilling will not bring the price of gas down…… in 2006 the US produced 5+ million barrels of oil those are facts reported by the National geographic….they may not be the Heritage Foundation but I trust their figures more……
There will be NO controls over where the oil goes if we open drilling in National forests….the futures markets were set up to try and control wild swings in prices….that was gamed and will continue to be gamed….
And nationalization would be about the only way to get cheaper gas……and the very mention of that word sends too many into a panic…
Lobotero,
…the truth is the more drilling will not bring the price of gas down…
Economists would scoff at this statement because it implies that you don’t believe supply & demand is relevant, which is insane considering you’re also blaming the high prices on speculators who “speculate” future supply & demand.
5+ million barrels that was put on the world market and that didn’t belong to the United States to begin with. Most of that oil is merely refined here.
I think if we establish a North American market, global events will be of no influence. If we stop speculators from driving up the price, market price will be based almost solely on current supply & demand. That’s my point.
How would nationalization guarantee cheaper gas? Do you really want put our energy resources in the hands of a bureaucracy, thereby giving government even more control over our lives?
You can have it.
Sorry Terrance, supply and demand does not apply to gas in most cases…..first, I never said that I wanted to nationalize the supply onlythat it would be good for price control….and it is not a perfect solution but if you want $2.50 gas….we are alking about 2 separate sectors as if theyare one…
Lobotero,
I simply fail to understand how you can believe that? Why doesn’t supply & demand affect the price of gas? Can you elaborate?
I also don’t understand in what way government-run oil production and distribution will automatically lead to lower prices.
I’m not trying to be difficult; I’m trying to understand where you’re coming from.
Terrance oil is traded in the futures market so is gas….each one is on a 6 month contract….at least it use to be, I quite trading 20 years ago so they may be a bit different today, but at much…..that out of the way……the demand curve is used only for the media……for instance if the curve is truly involved then winter months would be a lot cheaper and as they are, at least in my area they have been rising since January…..the demand curve is a blowjob for the consumer…..
I am not saying it would be cheaper but nationalization would eliminate the necessity for massive profits….at least that would be the theory…..
Okay now, I will be posting on this a little later, but take the keystone pipeline…..it would bring Canada’s oil from sands to Houston to be refined….there is NO deal that says once it is refined that it still would not be sold to china….and that is the selling point…we do not want china getting all that oil…..unless there is some deal that is unreported….it will not help our gas prices much…..
Terrance there is no problem….Hell it is a confusing market…there are even grad classes on the politics of oil….it is not easy to explain hope I helped a bit….
Lobotero,
I didn’t see this until you asked me about it in the other thread. I never subscribe to threads; I usually just go to the “Comments I’ve Made” section of WordPress and follow up with that, but occasionally I make so many comments that some of the older ones get lost and I miss out. I should start subscribing to threads.
I think you explained it pretty well. I’m going to do some more research on it. I never paid attention in any economics class, really. It was always boring to me. Debate was my favorite class, and I was hated by other students because of it. Especially when abortion came up. I was the only pro-lifer in the class so I was bombarded by 30 other students and, I don’t mind saying, I kicked all their asses. Even the professor, a lawyer, was amazed.
I have to be a bit conceded every now and again. LOL.
Terrance, i am sure some things have changed since I played in the futures but it should still be close….
According to the Petroleum Institute the demand for gas has declined in the last several years and so it that is true (not sure it is) then the price should be coming down…..
We all need to feed the ego from time to time….LOL