Gas Hike Is Crude On The Wallet

Reposted as history. Originally posted in April of 2005

By Cal Bryant - 3/19/2005 - Roanoke-Chowan News-Herald

Maybe I'm way off base here. Maybe the local retailers are forced to immediately pay a higher rate based upon the new per barrel price. If that's the case, then I apologize for thinking that they are solely out for a profit. Or are they?
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Okay, I'll shut-up whining and complaining. I've got to pump gas in my truck in order to drive to work, where I can make some money in order to visit the gas station again. I guess all I'm asking for is fair trade. Sell what you have at a reasonable price based upon its wholesale cost.

Have you ever noticed that whenever one of the newspapers in this country write an article about gas prices it is never intelligently researched and always ends up blaming "business"? Their assessment always includes a bunch of anecdotal emotional evidence that has nothing to do with the problem. The recent News-Herald editorial by Cal Bryant kept this practice alive. Cal doesn't just blame "business" but goes so far as to blame "local retailers". As forward thinking as the newspaper is in other areas you would think that someone on the paper would point out to Cal that gas is not sold under a free enterprise system. It has not been for years.

Since it is not a "free enterprise" product why would wholesale prices directly equate with the price at the pump? And since Cal never mentioned what wholesale prices were, why does he assume the "local retailer" did not receive a price increase anyway? His anecdotal evidence is not relevant.

Cal might start by checking out how gas prices are determined at "How Stuff Works". He would find that after adjusting prices for inflation, the $2.59 per gallon price at the end of Jimmy Carter's presidency is the worst we have ever seen. Today's inflation adjusted price is $1.79. To get prices under control what we need to understand is why prices are going up and what can be done to reduce them. Blaming "local retailers" is not helpful since they aren't the problem.

For two generations government at every level has interfered with the process of providing gas to the point that gas is the most regulated item that we buy. None of this government regulation has helped to keep prices low or supplies available. Government regulates importation, drilling, distribution, formulation, availability, pricing and competition between companies. It also taxes every aspect of the process egregiously.

For the last 35 years government has banned the construction of new refineries. Not one new refinery has been built in America in this period! This has resulted in a serious shortage of refinery capacity as gas consumption during this 35 years has grown steadily. The result? Higher prices.

For the last 35 years government has restricted the construction of new pipelines, moving more and more of the distribution of gas to trucks, the least safe, most manpower intensive and most taxed of the methods that gas can be transported. The result? Higher prices.

For more than 35 years government has imposed restrictions on automobile engines and fuels that significantly reduced the efficiency of engines and reduced the miles per gallon attained from each gallon of gas. This process has also been implemented in a chaotic pattern where (already short of refineries) we have ended the commodity nature of gas by requiring dozens of different formulas for gas. This means gas cannot be moved from one state to another to alleviate spot shortages. Clean air is desirable but the stupidity of the regulation has meant we do not have air as clean as it could be. The other result? Higher prices. During spot shortages, very high prices.

For more than 35 years government has opposed drilling for new oil anywhere in America, resulting in greater dependence on foreign suppliers. We then blame the beneficiaries of this policy, OPEC, for charging whatever they want for the gas we buy from them. The result? Higher prices.

During the last 35 years government has continuously raised taxes on gas through higher import duties, direct taxes, indirect taxes, sales taxes, excess profit taxes, regulatory burdens, licenses and fees. The result? Higher prices.

There is a AAA site on the web "Daily Fuel Gauge Report" that tracks the price of crude versus the price of gas at the pump. The price of crude has gone up from $.90 per gallon of refined gas to $1.30 per gallon since last May. That is a 45% increase. During the exact same period the national average for gas at the pump has gone up from $1.94 to $2.20 per gallon. That is a 10% increase. If it had increased as much as the price of crude it would be over $3.00 a gallon. Does this sound like the local gas stations are the problem? Does it even sound like the refineries are the problem?

Crude prices are going up. However understanding the problem requires getting past the simplistic "benchmark crude" price per barrel formula that newspapers focus on. Crude oil does not come in that grade alone. Crude is measured by a scale that is roughly described as sweet to sour. What it describes is how much sulfur and other undesirable elements are mixed in with the oil that must be extracted to make gas. The price of the best grades of crude are often far more volatile than the benchmark crude price the newspapers track. Since we cannot use the lower grades here in America, the actual price volatility of the oil that makes it into our gas is usually far higher than the simplistic assumption of liberal writers who can only blame "business".

Government is the problem. The supply of domestic oil has been reduced. Little has been done to encourage conservation because people don't want to conserve. Liberals have been so busy jacking taxes on gas to pay for government programs that they have failed to concern themselves with the consequences for you when you fill up at the station. They are, however, quite determined that you will not ever know what they have done.

Gas prices are higher than needed. However they will continue to go higher over time. That is due to the growth in energy demand in the world. It is not useful or helpful for writers like Cal to try and scapegoat "business", especially "local retailers". The highest gas prices we ever paid were when liberals truly messed up the system under democrat Jimmy Carter. It has been quite a while since that fiasco but we cannot forget and let them do it again. We need a rational response to what is a clear problem.

So what should be done?

We need to increase supply. That means we need to drill where the oil is with the modern environmentally safe procedures that have been developed. We need to redirect all the taxes on fuel into processes that reduce fuel consumption. (Better roads do this but we have dramatically reduced spending on better roads in the last 35 years.) We need to go back to gas as a commodity. That means standardizing the formulas nationwide so all refineries are making the same fuel. We need to reduce distribution costs, which means we need to build more refineries and pipelines to keep the fuel flowing smoothly and evenly to the point it is needed. And we need to re-introduce the competition of a free market that always drives out excess profits. If you want to understand any of the details of these proposals, a good place to start is with the very clear explanations on the Energy Information Administration (Part of the DOE) "Primer on Gasoline Prices"

What about it Cal? Can you stop blaming "local retailers" long enough to help pass real solutions to the real problems that will actually work? The only thing you and I seem to agree on is that prices need to go down.

(Followup on this article - a reader sent me a humorous perspective on gas prices. It was a list of other items we regularly buy titled "Think Gas Is Expensive". A couple of items that caught my eye:
- Lipton Ice Tea 16 oz $1.19 ...........$9.52 per gallon.
- Evian water 9 oz $1.49..........$21.19 per gallon!)