Wednesday, April 26, 2006

Figuring out the rising cost of gas...

The rising price of gas has all of us concerned. This is one of those moments in life where I really wish I was an economist. Alas I am a History major working among economists. Now I will tell you I am not entirely comfortable with jumping on the anti-oil companies bandwagon just yet, that just seems too easy. I really want to know the truth and I’m willing to research it and listen to what others have to say. There are many stories circulating the web about the causes of the increase in fuel prices. If you have comments, please feel free to put them here. I’m just going to tell you what I found and see what you think.

The 4/22/06 Washington Post reported the average breakdown of the cost of fuel:
54.8% cost of crude oil
21.7% refining
18.9% taxes
4.5% marketing, distribution and storage

Florida’s average price of regular gas today is 2.97/pg (source: AAA)
Below is the today’s breakdown in $$, in my area, based on the Washington Post’s % chart

Cost of crude oil: 1.63
Refining: .64
marketing/storage: .13
All taxes: .519
Total: 2.919

Breakdown of taxes in Florida
Source: American Petroleum Institute (2006)
And: Alachua County Commission(2005)

State: 26.5 cpg
Federal: 18.4 cpg
County 7.0 cpg (Alachua)
Total = 51.9 cpg


According to ConocoPhillips in the late 1990’s the average profit per gallon was 7.3 cents, while Conoco Phillips reported 9 cents in third quarter 2005.

This Consumer Watchdog, report focuses on how the price spike affected California, shows clearly that at least in that state, the difference between the “spot” market price of crude oil which is the max price companies will pay for the crude oil, and the pump price (excluding taxes) between January and April rose 42 cents per gallon which is pure profit for the oil companies. I would say that is pretty substantial.

In that great chart printed by the Post, they’re missing an important component which is the profit breakdown. Based on the chart, the people really have no idea WHAT the industry’s profit is. And before we start laying blame I think we should have a concise breakdown of the cost of gas.

Gibson Consulting does a pretty good job of breaking down the numbers. In a 2003 report on its site it breaksdown the costs and profits for marketing, refining, production, transportation etc. Sure it’s 3 years ago but it gives us at least some idea. I think the breakdown is important.

Anyway if you have more to add, PLEASE feel free to comment.

1 comment:

  1. You know what?
    What about milk? That crap is like 3.50 a gallon now! I remember when milk AND gas were 1.00 a gallon.
    So why no outcry about milk price gouging?

    Consumer goods fluctuate in price.
    People think NOTHING of paying $3 for a cup of coffee worth .25 now do they?

    What should the oil companies do? Donate all profits to charity?

    They will charge whatever people will pay and the way we are addicted to cars here...they have us.

    and meanwhile the animals living in the Alaskan wildlife refuge can feel safe.

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