Gas is strangely expensive right now, despite the fact that February prices are traditionally lower due to the use of less expensive winter fuel and less travel.
AAA spokesman John Townsend told the Washington Post, ‘that this “is the most expensive we’ve seen gasoline in the dead of winter.”
The sticker-shock at the pump is a rude reminder that even though energy independence for the United States is closer at hand than at any other time in the last fifty years, energy is still very much a global commodity. Americans may have been driving fewer miles, and buying more fuel efficient vehicles, but according to the U.S. Department of Energy‘s EIA, the average American household now spends 4 percent of its annual pre-tax on gasoline. That translates into almost $3,000 dollars a year, a very unpleasant figure.
With the national average for gasoline is $3.80 a gallon, near $4.00 on the West Coast, people all around the country are asking, what gives?
According to the Institute for Energy Research, gasoline prices are mainly based on four main components:
- The price of oil determined on world markets;
- Refining costs to transform oil into gasoline;
- Taxes levied by federal, state, and local governments; and
- Distribution and marketing costs including service station markup.
Overseas, Saudi Arabia is producing 700,000 fewer barrels a day than a year ago and market anxiety about tensions in Iran and Iraq, the civil war in Syria, and violence in oil-exporting nations such as Libya and Iraq have contributed to the rising cost of gasoline here in the United States.
Brent crude, used as an international benchmark, has been on an upward climb and is appears to have stabilized at $117-a-barrel, far short of any all-time high. While has traded upward, West Texas Intermediate (WTI) is much cheaper. In fact, that difference, known as “spread” should be helping to lower prices.
One culprit is the oil companies themselves. A significant number of refineries are operating at reduced capacity due to factors including EPA upgrades, maintenance and repair from Sandy storm damage. Others have closed indefinitely. San Antonio based Valero, recently stated that thee, “Atlantic Basin capacity closures have improved refining fundamentals.” That’s code for more profit per gallon.
According to the Washington Post, it is estimated that nearly 1 million barrels a day of refinery capacity has been closed on the East Coast or in the U.S. Virgin Islands in the past two years, which Valero said allowed it to increase profit margins.
You can blame Valero, but most other major oil companies like Conoco Phillips, Exxon Mobil, Chevron and BP utilize the same operating protocols during the winter months in order to meet summer demand. the exact same thing. A look at refining profit margins confirms the companies are doing well.
If this situation doesn’t seem bleak enough, then there are added costs from federal and state taxes which add another thirty to sixty cents per gallon on average to the price paid at th pump. There is talk in Washington about raising the national gas tax from 18.4 cents a gallon, which hasn’t changed since 1993. Proponents point out the as tax has lost over 40% of its purchasing power in twenty years. Steel, concrete and the like cost more today. Road funding has also been whittled away by other federal transportation projects like truck safety, transit grants and even high speed rail.
Federal taxes are kpet in “The Highway Trust Fund” which will run out of money in a few short years if federal transportation funding isn’t changed. While raising the tax is politically unpopular, theoretically, raising the gas tax would fix crumbling highways, lower oil imports, and reduce carbon emissions. While this is all well and good, raising the gas tax would certainly not make life easier for families struggling to make ends meet.
All these causes have resulted a perfect storm creating unseasonably high prices for gas, and without a consumer backlash, it doesn’t look like the pain at the pump will let up any time soon.
Read it on Forbes