Info on the price of gas vs. its cost?

Like every American who drives a car, I've been outraged by the latest pretext used by the oil companies to jack up prices and rape all of us YET AGAIN. Of COURSE the disruption of Libyan oil supplies is but a tiny hiccup on the market; Libya provides roughly 1% of the world's oil, and virtually none of it winds up here. A temporary reduction in supply of 1% has resulted in a 40% price increase. This actually might have had some basis in reality if existing worldwide production was at full capacity, but it's not--not even close. If this were a simple supply-demand problem, some sheik would simply twist a dial a little bit to the right and the world supply would be the same as it was before. So this is simple non-free-market manipulation, and just like a couple of years ago, the oil companies are testing the waters to see just how much they can twist our arms before we stop buying their products.

The question I've had is, just what is the COST of gasoline? From the purchase of crude, to shipment costs, to refining and distribution costs, to the retailer's markup, what does a gallon of gas cost Arco, Shell, Chevron, etc. to produce and sell? There seems to be no way to untangle the labyrinthine accounting in the companies' annual reports, and the only readily obtainable figure is the wholesale cost of the product, which of course means nothing: they could be making two cents, twenty cents, or two dollars/gallon. I would imagine that when the price of a gallon of gas skyrockets from $2.69 to $3.78 in two weeks (as it has here), somebody is making out like a bandit. The oil companies blame the increases on the volatility of crude oil prices, but that dog don't hunt. The price of crude is only about 25% of the cost of producing a gallon of gasoline. So we are being asked to believe that a 1% reduction in the supply of a material that factors into 25% of the cost of production results in a 40% increase in the cost of the end product. Horseshit.

Does anyone know of any source that would give a strict and accurate accounting of just how much profit margin the oil companies are making on the sale of gasoline since their latest price gouge move? And what about that information in general--aren't they, as publicly traded companies, obligated to provide detailed and accurate accounting information? But all I've seen in their annual reports is impenetrable muck.

The cost of a given gallon doesn't matter. What usually matters is the marginal cost of producing the last barrel being consumed. So low cost producers make more as prices rise and marginal producers add production as it becomes profitable. Also, of note is the oil is a globally traded commodity so it doesn't matter where our oil comes from any supply change will impact our prices.

Right now there is something else at play. Namely demand for oil isn't very elastic. Most people need a certain amount to run their car, heat homes or whatever they do with it. So it takes large price swings to impact short term demand. There is more if you're interested.

Quote: crazyiam

The cost of a given gallon doesn't matter. What usually matters is the marginal cost of producing the last barrel being consumed. So low cost producers make more as prices rise and marginal producers add production as it becomes profitable. Also, of note is the oil is a globally traded commodity so it doesn't matter where our oil comes from any supply change will impact our prices.

Right now there is something else at play. Namely demand for oil isn't very elastic. Most people need a certain amount to run their car, heat homes or whatever they do with it. So it takes large price swings to impact short term demand. There is more if you're interested.

What matters most is demand, same as any product. In the 1970s the price of gasoline was set by the governmnet and was based on cost. Guess whsat happened---long gas lines as consumers snapped up artificially low priced gasoline and at the same time producers refused to produce since there was not enough profit to be made. On day 1 of his administration Reagan removed controls on the price of oil. That was in 1981. By 1982 there was an oil glut. By 1986 the nominal price fell to the same level as 1978.

To see how it works, watch "Pawn Stars":

Rick: What do you want for it?
Customer: I paid $1,000 so say $1,100
Rick: What you paid doesn't matter to me, what matters is what I can sell it for. I'll give you $75.

Quote: AZDuffman

What matters most is demand, same as any product. In the 1970s the price of gasoline was set by the governmnet and was based on cost. Guess whsat happened---long gas lines as consumers snapped up artificially low priced gasoline and at the same time producers refused to produce since there was not enough profit to be made. On day 1 of his administration Reagan removed controls on the price of oil. That was in 1981. By 1982 there was an oil glut. By 1986 the nominal price fell to the same level as 1978.

To see how it works, watch "Pawn Stars":

Rick: What do you want for it?
Customer: I paid $1,000 so say $1,100
Rick: What you paid doesn't matter to me, what matters is what I can sell it for. I'll give you $75.

What matters is a balance of supply and demand. If there is more demand than supply at a given price the price moves up. If there is less demand than supply it moves down.

The rest of what you said is irrelevant since it only applies to a market that's artificially constrained. That's not the case for oil in the US.

Quote: crazyiam

What matters is a balance of supply and demand. If there is more demand than supply at a given price the price moves up. If there is less demand than supply it moves down.

The rest of what you said is irrelevant since it only applies to a market that's artificially constrained. That's not the case for oil in the US.

It is relevant in showing how demand, not cost, is all that matters in the price of gasoline. There is a large portion of the USA who is ignorant of this and wants some kind of price control because they feel they are being "gouged."

Quote: AZDuffman

It is relevant in showing how demand, not cost, is all that matters in the price of gasoline. There is a large portion of the USA who is ignorant of this and wants some kind of price control because they feel they are being "gouged."

If it were true that demand is what drives the price of gasoline, then there must have been a huge increase in demand during the last three weeks when the price of gasoline increased by 40%. I guess everyone started driving around in circles or something. In any case, demand never exists in a vacuum, unless supply is unlimited.

It's a fiction that the market for petroleum products operates according the the rules of the free market. It's a tightly controlled UNfree market, where neither demand NOR supply have much influence on the price.

And cost does, and should, matter in the price of gasoline. It's silly to say otherwise.

Quote: mkl654321

If it were true that demand is what drives the price of gasoline, then there must have been a huge increase in demand during the last three weeks when the price of gasoline increased by 40%. I guess everyone started driving around in circles or something. In any case, demand never exists in a vacuum, unless supply is unlimited.

It's a fiction that the market for petroleum products operates according the the rules of the free market. It's a tightly controlled UNfree market, where neither demand NOR supply have much influence on the price.

And cost does, and should, matter in the price of gasoline. It's silly to say otherwise.

There is a slow increase in demand, but most of the price rise is supply decrease and maybe a fear premium. Its hard to add supply to the oil market and takes a long time. The only producer with spare capacity is Saudi Arabia and they don't play by the market. So if we reduce supply by 1% prices have to rise to reduce demand by 1% or enough that it makes sense for someone else to replace the oil with new supplies.

Oil demand is not very elastic short term. People still need to get to work, farm ect. Also in rich countries its a small share of our incomes that we spend on it and replacing our cars takes a long time. In many poor countries oil is subsidized and its even hard to impact demand. So prices rise alot to account for a small drop in supply.

Another factor is the oil from Libya is among the highest quality. So even if replacement oil is found not all refineries can use the replacement.

Quote: crazyiam

There is a slow increase in demand, but most of the price rise is supply decrease and maybe a fear premium. Its hard to add supply to the oil market and takes a long time. The only producer with spare capacity is Saudi Arabia and they don't play by the market. So if we reduce supply by 1% prices have to rise to reduce demand by 1% or enough that it makes sense for someone else to replace the oil with new supplies.

Oil demand is not very elastic short term. People still need to get to work, farm ect. Also in rich countries its a small share of our incomes that we spend on it and replacing our cars takes a long time. In many poor countries oil is subsidized and its even hard to impact demand. So prices rise alot to account for a small drop in supply.

Another factor is the oil from Libya is among the highest quality. So even if replacement oil is found not all refineries can use the replacement.

A 1% loss of supply can and does totally muck up the markets. Quality of oil is a biggie as you said, changing the refinery is not easy. Nor is shutting one for a few days. Paying several $ more per bbl can be cheaper than a shutdown. A small change in retail demand also does big things. Imagine gasoline goes to $4 again and every car uses 1 gallon less per week as people change habbits. Not hard to imagine. There are about 240 million cars in the USA. Some quick research shows we get just under 50% yeild on a 42 gallon barrel of oil, call it 21 gallons. 240/21 = 11.4 million less barrels of oil needed if this happened.

The USA is using about 19.5 bbl of oil a day. With a little rounding in simple terms a gallon saved per car drops demand by a half a day's oil per week.

The price won't drop right away, but after a few weeks at the refinery someone says, "Hey, boss, we need to slow production, nowhere to put the gasoline!"

we are also entering into the summer gas season, whenre they change the blend and increase the price a certain percentage.

it's not just libya. there are several countries in the middle east that are in conflict right now, and several more that could end up in civil war/revolts/etc. that could push other countries in the neighborhood to start taking action, from influencing revolts to funding/providing arms, to just invading. let's face it, the whole region is like the houses in a game of Angry Birds - one well-timed shot blows up the whole thing. THAT is what causes the price runups - the "in case shit happens" mentality of commodities traders who push around millions, if not billions, of dollars worth of contracts based on what-if scenarios and fear of the "oh shit".

Quote: nullzero00

we are also entering into the summer gas season, whenre they change the blend and increase the price a certain percentage.

it's not just libya. there are several countries in the middle east that are in conflict right now, and several more that could end up in civil war/revolts/etc. that could push other countries in the neighborhood to start taking action, from influencing revolts to funding/providing arms, to just invading. let's face it, the whole region is like the houses in a game of Angry Birds - one well-timed shot blows up the whole thing. THAT is what causes the price runups - the "in case shit happens" mentality of commodities traders who push around millions, if not billions, of dollars worth of contracts based on what-if scenarios and fear of the "oh shit".

I realize that's the pretext, but raising prices based on something that COULD happen is ridiculous, and irrational. Suppose the supply is not, as it turns out, disrupted in any major way over the coming months? Will the oil companies give their windfall profits back to the consumer? For don't forget, even though they've jacked up the price of gasoline by 40%, their costs haven't changed one iota--if anything, those costs have gone down--so the extra markup is pure, pure profit.

And that "blend" nonsense is just another pretext. They also jack up the price when they change to the "winter blend". There is no intrinsic reason (i.e., no additional cost component) why one seasonal blend of gasoline should cost more than another. The stuff may be DIFFERENT in the summer, but it's not any more expensive to make, not meaningfully so, anyway. It's just an excuse to screw over consumers who will naturally be driving more in the summer. One thing that they haven't yet thought of is jacking up the price by twenty cents or so on Friday afternoon because they're now selling "weekend blend", and I'll probably be kicking myself for mentioning that.

I'm sorry, but claiming there is a conspiracy by "them" (the oil companies) to jack up oil prices is just silly, as you would say. There is no group of Exxon, Chevron, and BP execs sitting in a room and setting the prices for oil. It's set on the free market by exchange traders, based on supply and a host of other factors, like demand, weather conditions, political situations, transport, etc. Complaining about the price of oil is like complaining about the free market economy. Yes, investors are probably being irrational about the effect of the Libya crisis and driving up the price. Demand is going to down because the price has risen so dramatically. This, in turn, will cause the price to stabilize and probably fall if supply remains constant.

There is no such thing as a summer blend or weekend blend or raising prices on the weekend -- that is all ridiculous. Prices are higher in the summer because people travel more and there is more demand -- simple as that. Actually, some years the price is less in summer.

Quote: teddys

I'm sorry, but claiming there is a conspiracy by "them" (the oil companies) to jack up oil prices is just silly, as you would say. There is no group of Exxon, Chevron, and BP execs sitting in a room and setting the prices for oil. It's set on the free market by exchange traders, based on supply and a host of other factors, like demand, weather conditions, political situations, transport, etc. Complaining about the price of oil is like complaining about the free market economy. Yes, investors are probably being irrational about the effect of the Libya crisis and driving up the price. Demand is going to down because the price has risen so dramatically. This, in turn, will cause the price to stabilize and probably fall if supply remains constant.

There is no such thing as a summer blend or weekend blend or raising prices on the weekend -- that is all ridiculous. Prices are higher in the summer because people travel more and there is more demand -- simple as that. Actually, some years the price is less in summer.

Any collusive market, or a cartel, is pretty much by definition a conspiracy. And please don't tell me that the market for petroleum products is competitive.

There is no "free market" for oil. The most obvious indicator of this is that the market that does exist behaves nothing like a free market would.

I agree that the "summer blend" is ridiculous, but that's exactly what the oil companies are using as one of the pretexts for the present (and, of course, coming) price gouge--it's their phrase, not mine. In any case, no one believes their bullshit any more--they charge whatever they can get away with, pure and simple. And the market is tightly controlled at all phases of extraction, production, and distribution, to ensure that free market forces cannot intervene and cause prices to be fair or to reflect reality. The only recourse we poor face-down-and-enjoy-it consumers have is to drive fuel-efficient cars, not that that will help in the long run.

Quote: teddys

I'm sorry, but claiming there is a conspiracy by "them" (the oil companies) to jack up oil prices is just silly, as you would say. There is no group of Exxon, Chevron, and BP execs sitting in a room and setting the prices for oil. It's set on the free market by exchange traders, based on supply and a host of other factors, like demand, weather conditions, political situations, transport, etc. Complaining about the price of oil is like complaining about the free market economy. Yes, investors are probably being irrational about the effect of the Libya crisis and driving up the price. Demand is going to down because the price has risen so dramatically. This, in turn, will cause the price to stabilize and probably fall if supply remains constant.

Very correct, even with all of the consolidation the last 20 years the industry is still fragmented. Back in the 50s/60s the Seven Sisters had more control than OPEC has now and they could not set prices. Today OPEC has a "target price" but has a very hard time maintaining it for long. Lots of oil from lots of sources to lots of customers in lots of places means no one will "control the market" in our time. Even in the USA only and down to what is it now, four of the old Seven Sisters, prices go up and down all the time. At least the signs at most stations are digital now so the teenage kid at the Mobil Station doesn't have to drag the ladder out to change them twice a day.

Heck, as a kid I remember prices changed THREE TIMES in one day once.

Quote: mkl654321

... I agree that the "summer blend" is ridiculous, but that's exactly what the oil companies are using as one of the pretexts for the present (and, of course, coming) price gouge--it's their phrase, not mine. In any case, no one believes their bullshit any more ....

I have never worked in the refining industry (considered an offer once back in '68), but I don't think I have been convinced yet that this is completely bullshit. I think there may even be two different interpretations of the term "summer blend."

One definition would relate to the blend of components in the gasoline that is sold. Perhaps someone on this forum has some actual experience in petroleum refining and could expound on this. I think there is, or at least used to be, a seasonal adjustment in volatility -- provide sufficient volatility for cold starts in the winter and low enough volatility to keep it from evaporating too quickly in the summer. I think there were/are geographic differences in what is sold, with adjustments for typical temperatures and altitudes. I remember a TV commercial in the '60s or '70s showing a car that ran well in the northern Rockies but not so well when it used that same fuel blend along the Gulf coast. Now the commercial could have been BS, but the claim was that they sold different blends all around the country. Don't know what was supposed to happen if you drove from the mountains to a nearby coast on a single tank. ;-)

The other definition would relate to the blend of products that are being produced simultaneously. In the summer, the process is set up to produce less heating oil and more gasoline from the same feed stock.

I'm not sure that either of these interpretations of "summer blend" necessarily implies that gasoline itself costs more to produce in either the summer or winter. Instead, the changeover from one production mode to the other may involve at least partial shutdown of facilities, giving a drop in supply to the market place -- at the start of the summer and at the start of the winter -- and a resulting increase in retail price (in spite of the many aspects of this market that don't seem to follow "normal" supply-demand economics.)

Yes, thee are differences in the chemicals added to gasoline for different times of the year. The chemicals are more expensive in the summer, than in the winter, so the price goes up. But the difference in prices is pennies on the gallon.

There is a cartel that controls oil prices. It is called OPEC.

And right now, many of its members are feeling the heat of revolution. The House of Saud may explode someday soon, and if that happens, you will be dreaming of the days of $3.78 gas......

The cost of production of one barrel of Oil averages from about $10 per barrel in the Middle East to about $20 in the North Sea. The "standard" price is still West Texas Crude, and all grades of crude oil are based upon that price, either higher or lower.

Production costs have very little to do with the "market" price of a barrel of oil. The "market" price is set as to what OPEC wants, currently about $70 a barrel, and what the "market" will force it go too. Since there is alot of "fear" inthe market, the price of Oil is increasing on the world market.

Libya is a small player in the worldwide oil market, but they may be the first oil regime to be changed before this all sorts out. Who do you write the check to when the other guy is swinging on a lampost out front? How can you be sure that the guy you are writing the check to, WILL deliver the oil you just purchased? So, the "stable" ones can and will get a higher price for thier oil, until there are no "stable" ones left.

And then your talking about $10 to $30 a gallon for gas.

Because if the House of Saud falls, then you have Iran and Iraq to sell to the western world. Then you have Kuwait, UAE, Nigeria and Venezuela We have Iraq generally in our pocket, and Kuwait will certainly listen. That crazy guy in charge in Venezuela loves to criticize us, but he WANTS the checks every month, and price increases just gives him larger checks. UAE could fall, and Nigeria is a mess of a different order.

So, its understandable WHY someone who has something that others want, WHY they would charge MORE if they can get it.

SFB

Quote: Doc

I think there were/are geographic differences in what is sold, with adjustments for typical temperatures and altitudes. I remember a TV commercial in the '60s or '70s showing a car that ran well in the northern Rockies but not so well when it used that same fuel blend along the Gulf coast. Now the commercial could have been BS, but the claim was that they sold different blends all around the country. Don't know what was supposed to happen if you drove from the mountains to a nearby coast on a single tank. ;-)

I remember a magazine ad that showed all the different blends needed nationwide, I think it was 10 or more. Chicago is supposed to have higher priced gas because some government mandated belnd makes it an "island" inside of other blends. I remember as a kid when the weather first changed in spring the cars ran crappy until the old gas was gone from the tank (theirs and yours.)

I agree and don't think it is the chemicals themselves that cause the increase. Instead it is that you need to store "summer gas" this time of year until April 15th or so. To have enough ready you need to blend it in advance and fill the literal and figurative pipeline. After you switch the supply of winter gas falls. Thus the price rises.

I have always wondered why not a larger alcohol conversion in motor fuel. We can make it from other things than corn.

Quote: Doc

I'm not sure that either of these interpretations of "summer blend" necessarily implies that gasoline itself costs more to produce in either the summer or winter. Instead, the changeover from one production mode to the other may involve at least partial shutdown of facilities, giving a drop in supply to the market place -- at the start of the summer and at the start of the winter -- and a resulting increase in retail price (in spite of the many aspects of this market that don't seem to follow "normal" supply-demand economics.)

That makes some sort of sense, but exactly how much disruption are we talking about? Since whatever variety of gasoline is being produced is meant for consumption several weeks later, the summer fuel could start to be made well before summer, and before the converted fuel actually arrived at the pumps. So the refineries could ramp up production of the WINTER fuel just before the conversion took place, to ensure that the supply wouldn't be disrupted during the changeover. This is a trivially obvious strategy, and would occur to anyone with a brain who actually cared about not disrupting supply: if a company manufactures a product for which there is a constant demand, and it knows its production facilities will be idled for some length of time, it will increase production before the shutdown to ensure that the market isn't disrupted. But of course, the oil companies BENEFIT from every disruption in the market, so they have no reason to act as a rational supplier in a free market would.

It's very much akin to taxation. The only constraint on the market price is that above a certain point, demand drops, but even that is OK as long as net revenue continues to increase (much the same way as tax increases continue to increase revenue even if some taxpayers cease/reduce economic activity because of those taxes). The oil companies have been probing, probing, probing to find out just how much they can charge before the price starts to significantly affect consumption patterns. A couple of years ago, they found out that $4.50 was about as high as they could go. They're obviously trying to get past that point again, on the assumption that the recession is sort of over, that people have more money in their pockets, and they therefore can siphon off all that extra money.

The sad part is that most of us have no choice but to drive; our national transportation infrastructure is geared to the private vehicle. The oil companies are all too aware of this dependency, and the tax they exact on the American public will choke off and kill whatever economic recovery we manage to achieve.

Quote: mkl654321

The question I've had is, just what is the COST of gasoline? From the purchase of crude, to shipment costs, to refining and distribution costs, to the retailer's markup, what does a gallon of gas cost Arco, Shell, Chevron, etc. to produce and sell?

Well, oil is $105/barrel now, AFAIK it's the price at point or port of origin. A barrel is 42 gallons, of which 33 is vehicle fuel (gas, diesel, jet), the rest is mostly cheaper fuel oil and bitumen. So starting oil alone, you are around $2.50/gallon. Since ~22% of that goes into cheaper products, another 10% can be added.

Current retail gas prices start at around $3.25 in New Jersey. That leaves about $0.50 for oil transportation, refining, delivery, retail handling and profit.

So oil processing companies aren't making their megaprofits on high margins (they only have a couple percent to play with), rather on high volumes. Maybe they could deliver gas at $3.15 instead of $3.25 if they were non-profits, but that's it, it can't be $2/gallon.

Quote: mkl654321

Since whatever variety of gasoline is being produced is meant for consumption several weeks later, the summer fuel could start to be made well before summer, and before the converted fuel actually arrived at the pumps. So the refineries could ramp up production of the WINTER fuel just before the conversion took place, to ensure that the supply wouldn't be disrupted during the changeover.

I'm pretty sure that with all these SUVs flooding the market and the roads, refineries are close enough to full capacity already.
No for-profit industry is also going to sell gas for less than it costs to make now, even if it spent less actually making it some time ago.

The problem with oil is that demand is barely satisfiable and keeps growing (regardless of cost), while increasing the supply isn't so easy, so even marginal changes in the supply can lead to deficit situations. In such a situation, it's either drawing lottery tickets to who gets $2/gallon gas and who gets a day off, or the supply going to the highest bidder first.

I disagree that there is a conspiracy or cartel setting oil prices. (But it is more plausible than VP being rigged :)) It certainly isn't the oil companies doing it. Their profit margins are slim anyway. If you want to blame someone, blame OPEC, or your own local government. Taxation and regulation is a huge part of gas prices -- ever look at a gas price map and wonder why the price of gas in New York City is often the highest in the country, while right across the river in New Jersey it is often the lowest? Taxes and regulation. Even OPEC doesn't have ultimate control over prices; when they work together, like they did in 1973, they can have an effect and cause prices to shoot up. But it didn't work in the '80s, when prices fell, OPEC weakened, and Saudi Arabia broke away raising production against the will of the rest of the members. The market for buying and selling oil is free -- how is a free market "supposed" to behave? It is certainly more volatile than any other commodity, but that's because it is the most traded, most demanded commodity in the world, and there are hundreds if not thousands of downstream, midstream, and upstream processors and a bunch of weird political factors come into play. The best you can hope for is for a transparent, regulated exchange and let the price settle at what buyers are willing to pay.

I don't complain about high gas prices. If you don't like them, don't drive. I haven't driven locally in two months. I would be much more concerned with the price of coffee at Starbucks. I would like to know the cost of producing one of those coffee or lattes. (Okay, I do know how much it costs). Now THAT is an obscene profit margin -- yet nobody complains? (And yes, there are some people who need coffee as much as some need gasoline).

Quote: mkl654321

I realize that's the pretext, but raising prices based on something that COULD happen is ridiculous, and irrational.

well, Apple's stock cratered when ol' stevey revealed his latest tumor or illness du jour, as if he thought up, developed, built, and shipped every iBuyitagain product out there.

The markets are irrational in the short term... plenty of of examples of it throughout economic history.

Quote: thecesspit

The markets are irrational in the short term... plenty of of examples of it throughout economic history.

I'm not sure that applies here, though--the oil markets are rational in the sense that they achieve the goal of their manipulators--an artificial pegging of both price and supply that results in maximum profits. The oil companies were just about the only companies that not only survived, but positively thrived during, the Second Great Depression. They were able to command historically high prices for their products at the very same time when the world economy was in its worst shape since 1929. Quite a feat, if you think about it.

My point earlier was that the "petroleum market" isn't a market at all, not in the sense we understand it. Again, the most obvious manifestation of that is that it in no way acts like a real, free market would.

We've visited this before. Please, facts.

According to the EIA (US Energy Information Administration) for the month of December, the US imported the following total amount of petroleum (in thousands of barrel per day). Of the 11,104 thousand barrels per day imported, 4,614 thousand barrels per day (42 percent) was imported from OPEC countries (asterisked). Only 1,564 thousand barrels per day come from the Persian Gulf region.

Canada - 2,713
Mexico - 1,365
Saudi Arabia - 1,087*
Nigeria - 1,070*
Venezuela - 917*
Russia - 514
Algeria - 484*
Iraq - 336*
Angola - 319*
Brazil - 295

(Libya - 66). Even though Libya's number is small, at $80/barrel, the US paid Libya very close to a cool billion for oil products in the last six months of 2010. That's alot of guns.

The spot price for Gasoline is what dictates what you eventually pay for gas (plus taxes, delivery, and the gas station markup, of course). The EIA shows stats for this here. The daily price for March 23th for Conventional Gasoline delivered to New York Harbor was 2.821/gallon which the highest since September 18, 2008 (gas was 3.147 that day).

The market is highly volatile due to speculation and perceptions on demand. Much as I don't like it, it is how the free market works. Fixing prices does not make sense.

In my opinion, if anything, the price of gasoline in the United States is far too low -- you really want to change market conditions to get off oil and onto other types of energy that you don't have to import, like Natural Gas, Coal, and renewables that the United States have plenty of. I know that Americans have love affairs with the car which is partially a function of the size of the country compared to compact countries everywhere else but it's time to move away from oil.

Quote: boymimbo

In my opinion, if anything, the price of gasoline in the United States is far too low -- you really want to change market conditions to get off oil and onto other types of energy that you don't have to import, like Natural Gas, Coal, and renewables that the United States have plenty of. I know that Americans have love affairs with the car which is partially a function of the size of the country compared to compact countries everywhere else but it's time to move away from oil.

Far too low--why? The reason why Europeans pay so much for gasoline is that it is ridiculously heavily taxed. There are two reasons for this--culturally, driving a car is regarded in Europe as a privilege of the elite, while in the US, it's considered the right of any average Joe; also, the European welfare state needs to suck in huge amounts of tax revenue, and taxing gasoline like crazy is a good way of soaking the aforementioned rich elite--you want to drive YOUR OWN PERSONAL VEHICLE, buddy, instead of crowding onto the streetcar like everyone else, well, you're gonna pay for it.

If you remove the overlay of the tax paid for a gallon of gas in both Europe and the US, you'll find that the retail prices for the gas itself are about the same in both places. In France, for example, about 70% of the retail price is tax; in the US, it ranges from 7-17%.

So in reality, the price of gasoline in the US isn't "far too low"--the nontax component of the price is about what everyone else pays. What is true is that the fuel taxes in Europe are far too high. In the commerce in any retail good where the tax is more than twice the actual cost of the item, something is seriously out of whack, which pretty much describes European redistributive economies in general.

I'll agree to disagree.

Taxes are a way to discourage one's use of a product or service. Add enough taxes on smokes and you drive the teenaged smokers away. It works. America gets into conflicts because of its interests in foreign oil. If it didn't have as much interest in foreign oil by switching over to other forms of fuel, it wouldn't act on the events in Libya, probably wouldn't have be involved in overthrowing the Iraqi government and the ensuing war, and wouldn't have to kiss Saudia Arabia's (and overlook the fact that 18 of the 19 bombers in 2001 were Saudi Citizens) and Venezuela's ass either. It would take away Aberdinijad's voice too. Because America would control the prices on its fuels (which are self-sustaining to some degree), it would have more control over its economic stability rather than some day-traders who jack the price of gasoline up because of Khadafi taking over some city in is own country. That's why we pay far too little for gasoline.

If gas was $10/gallon instead of the $3.75 it is now, you can bet that alot of people would be dumping the SUV for the hybrid or the Volt. They'd be dumping their oil furnace for natural gas. You'd drive less. You'd fly less. They would take the train or subway alot more. $5/gallon gas doesn't stop many people from driving. They just whine on forums like these.

Quote: boymimbo

I'll agree to disagree.

Taxes are a way to discourage one's use of a product or service. Add enough taxes on smokes and you drive the teenaged smokers away. It works. America gets into conflicts because of its interests in foreign oil. If it didn't have as much interest in foreign oil by switching over to other forms of fuel, it wouldn't act on the events in Libya, probably wouldn't have be involved in overthrowing the Iraqi government and the ensuing war, and wouldn't have to kiss Saudia Arabia's (and overlook the fact that 18 of the 19 bombers in 2001 were Saudi Citizens) and Venezuela's ass either. It would take away Aberdinijad's voice too. Because America would control the prices on its fuels (which are self-sustaining to some degree), it would have more control over its economic stability rather than some day-traders who jack the price of gasoline up because of Khadafi taking over some city in is own country. That's why we pay far too little for gasoline.

If gas was $10/gallon instead of the $3.75 it is now, you can bet that alot of people would be dumping the SUV for the hybrid or the Volt. They'd be dumping their oil furnace for natural gas. You'd drive less. You'd fly less. They would take the train or subway alot more. $5/gallon gas doesn't stop many people from driving. They just whine on forums like these.

I think that ascribing the motives for the conflicts America gets into to "interests in foreign oil" is simplistic, easily argued, and 90% incorrect. Of course, that's what all the America-bashers (in America and elsewhere) toot out of various orifices, but the fact of the matter is that if we wanted to militarily dominate the Middle East oil supplies, Iraq and Afghanistan would probably be the LAST two places we would pick. To use your Saudi argument, we actually had a perfect pretext to send in the Marines and take over that country after 9/11--but we didn't. We DON'T "kiss Venezuela's ass", simply because we don't need them. We buy what they sell because it's convenient--that's all.

I agree that if we simply relied on domestic supply, then we wouldn't be as threatened by events in God's Monkey House (as Kurt Vonnegut refers to it), but I don't see how it follows that gas is too inexpensive. Sure, we could raise the price to $8000/gallon, then we would all walk or ride horses, and could tell the entire Middle East to eat sand. But would our quality of life be better, or worse? And to move to your example, what would be the effect on our quality of life if the price did go to $10, and we DID "drive less", "fly less", etc.? What would be the effect on American lives if it cost $500 to drive to the mountains and go camping? If it cost $9000 to fly the family back east to see Grandma and Grandpa? The ability to travel freely and relatively cheaply is a major social good. If you would triple the price of gas because it's somehow "wrong" that people should have relatively cheap transportation (as has been done, pretty much, in Europe), then there'd better be some substantial compensating social benefit.

The point of $10-$15/gallon, if the rise was gradual over a few decades, wouldn't really substantially affect how much people drive or travel, at most just how specifically they travel. Anything past $20-$30 definitely would though.

A typical modern car gets ~30mpg and has a TCO between $0.50/mile and $0.80/mile, of which ~$0.50/mile is non-fuel costs, and, at current prices, ~$0.12-$0.15/mile is fuel costs. Changes in behavior become major at doubling the cost, which would occur with an extra $0.60-$0.70/mile added to fuel costs. At aforementioned 30mpg figure, and adding current cost, that is about $0.75*30=$22.5/gallon. Fuel would begin comprising half the ownership cost at around $15/gallon.

Speaking of which, can someone please explain to me how people (government, employers, my dad) figure out how to calculate the cost per mile for driving? I use one metric: gas. That's the only thing coming out of my pocket. Everything else is already paid for.

Why do people insist on adding other things? When I walk somewhere, it's free. I'm not counting the cost of food I ate to get the calories to walk, the wear on my body that will cause me to die earlier, or my homeowners/life insurance. Why do it for the car?

Quote: teddys

Speaking of which, can someone please explain to me how people (government, employers, my dad) figure out how to calculate the cost per mile for driving? I use one metric: gas. That's the only thing coming out of my pocket. Everything else is already paid for.

Why do people insist on adding other things? When I walk somewhere, it's free. I'm not counting the cost of food I ate to get the calories to walk, the wear on my body that will cause me to die earlier, or my homeowners/life insurance. Why do it for the car?

Gas+maintenance+depreciation. Of course, at some point, your car is fully depreciated (and hopefully, still operational), but this is offset by the increasing cost of maintenance as the car gets older. The IRS calculation is a weighted average of those three costs over the useful life of the car.

Maintenance is certainly "coming out of your pocket" all the time, since there will be x amount of maintenance needed per y number of miles driven. Your car declines in value (depreciates) as more miles are put on it. This, too, is happening all the time.

Your walking analogy is actually a good one. Walking is NOT free. There are the calories you must expend to do it, the time you must spend to get wherever you're going, and the risk factor of getting mugged, run over, etc. You don't count those factors that you mention, but you SHOULD. (Another cost of walking that people don't realize is opportunity cost.)

Quote: boymimbo

If gas was $10/gallon instead of the $3.75 it is now, you can bet that alot of people would be dumping the SUV for the hybrid or the Volt.

I heard that argument before "If gas was $3 instead of $1.50m people would ...", and then it was $4 ... and nothing happened

Quote: mkl654321

Walking is NOT free. There are the calories you must expend to do it,

This is actually a negative cost, offsetting the other things you mentioned. People usually PAY nowadays to get rid of calories.
Need to add the wear and tear on shoes to your list though.

Quote: weaselman

This is actually a negative cost, offsetting the other things you mentioned. People usually PAY nowadays to get rid of calories.
Need to add the wear and tear on shoes to your list though.

That depends on whether you view the expending of calories as a cost or a benefit (as you call it, a "negative cost"). If you're an overweight suburbanite trying to take off some pounds on the jogging path, that's one thing. But to, say, a villager in Kenya walking a couple of miles to fetch water, the walking has a definite cost in terms of energy expenditure.

And for both persons, walking carries an opportunity cost: time spent doing it cannot be spent on other endeavors. This is why most people in Western countries don't walk when there's a viable alternative: it's too time-consuming.