Pardon My Gas

Gas at $3.16? Whta a shock that was ! The tank in my Taurus was getting low and it was time to cry with the other car owners as we stood together filling tanks that were crying for more petrol.

Well, I passed that station and decided to head to the other part of town with the hopes of finding a lower price. Finally, I found one station at $3.03 and was delighted. What really struck me finny was that days ago, I had paid only $297 for the same gas. How could the price change so much in just a couple of days.

So I set oout to find out what and how the prices are set for the gas that munches on my debit card. I ran into an article from about 2005. Oh for the good old days ! Gas was $2.27 then.

Here's how they broke it down. Crude oil costs about 50 % -Federal and State taxes about 14%-Refining costs and profits 28%-Distributing and marketing 8%.

Why Do Gas Prices Fluctuate?

Here's what I found out. Even when crude oil prices are stable, gasoline prices normally fluctuate due to factors such as seasonality and local retail station competition. Additionally, gasoline prices can change rapidly due to crude oil supply disruptions stemming from world events, or domestic problems such as refinery or pipeline outages.

Seasonality in the demand for gasoline - When crude oil prices are stable, retail gasoline prices tend to gradually rise before and during the summer, when people drive more, and fall in the winter. Good weather and vacations cause U.S. summer gasoline demand to average about 5 percent higher than during the rest of the year. If crude oil prices remain unchanged, gasoline prices would typically increase by 10-20 cents from January to the summer.

Changes in the cost of crude oil - Events in crude oil markets were a major factor in all but one of the five run-ups in gasoline prices between 1992 and 1997, according to the National Petroleum Council’s study, U.S. Petroleum Supply - Inventory Dynamics. About 47 barrels of gasoline are produced from every 100 barrels of crude oil processed at U. S. refineries, with other refined products making up the remainder.

Crude oil prices are determined by worldwide supply and demand, with significant influence by the Organization of Petroleum Exporting Countries (OPEC). Since it was organized in 1960, OPEC has tried to keep world oil prices at its target level by setting an upper production limit on its members. OPEC has the potential to influence oil prices worldwide because its members possess such a great portion of the world’s oil supply, accounting for about 40 percent of the world’s production of crude oil and holding more than two-thirds of the world’s estimated crude oil reserves. Additionally, increased demand for gasoline and other refined products in the United States and the rest of the world is also exerting upward pressure on crude oil prices.

Rapid gasoline price increases have occurred in response to crude oil shortages caused by, for example, the Arab oil embargo in 1973, the Iranian revolution in 1978, the Iran/Iraq war in 1980, and the Persian Gulf conflict in 1990. Gasoline price increases in recent years have been due in part to OPEC crude oil production cuts, turmoil in key oil producing countries, and problems with petroleum infrastructure (e.g., refineries and pipelines) within the United States. Additionally, increased demand for gasoline and other petroleum products in the United States and the rest of the world is also exerting upward pressure on prices.

Product supply/demand imbalances - If demand rises quickly or supply declines unexpectedly due to refinery production problems or lagging imports, gasoline inventories (stocks) may decline rapidly. When stocks are low and falling, some wholesalers become concerned that supplies may not be adequate over the short term and bid higher for available product. Such imbalances have occurred when a region has changed from one fuel type to another (e.g., to cleaner-burning gasoline) as refiners and marketers adjust to the new product. Gasoline may be less expensive in one summer when supplies are plentiful vs. another summer when they are not. These are normal price fluctuations, experienced in all commodity markets. However, prices of basic energy (gasoline, electricity, natural gas, heating oil) are generally more volatile than prices of other commodities. One reason is that consumers are limited in their ability to substitute between fuels when the price for gasoline, for example, fluctuates. So, while consumers can substitute readily between food products when relative prices shift, most do not have that option in fueling their vehicles.

Station markup -  Service stations add on a few cents per gallon. There's no set standard for how much gas stations add on to the price. Some may add just a couple of cents, while others may add as much as a dime or more. However, some states have markup laws prohibiting stations from charging less than a certain percentage over invoice from the wholesaler. These laws are designed to protect small, individually-owned gas stations from being driven out of business by large chains who can afford to slash prices at select locations

The single largest entity impacting the world's oil supplies is the Organization of the Petroleum Exporting Countries (OPEC), a consortium of 12 countries: Algeria, Angola, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela.

Together, these 12 nations are responsible for 40 percent of the world's oil production and hold two-thirds of the world's oil reserves, according to the Energy Information Administration (EIA). When OPEC wants to raise the price of crude oil, it simply reduces production. This causes gasoline prices to jump because of the short supply, but also because of the possibility of future reductions. When oil production dips, gas companies get nervous. The mere threat of oil reductions can raise gas prices.

So, after all this research on my part, it seems that we are being held hostage at the pump. Right now, crude is running $100 a barrel, no wonder I wound up paying $3.03 for my gas- and that was only 87.

Guess the bigger question is what will happen next? Should we regulate what stations can charge? Will Washington ever move to less dependent sources of fuel-like ethanol-or will be oil win out? Can a small family with a minivan survive this trend? Is recession on it's way?

For my part. and my pocketbook, I will be timing my trips so that I can get as much done in one trip out as I can. I will also be looking at the candidates this year and where thier income comes from. No more oil men in the white house for me........I will be watching legislation and I will be letting my senator know where I stand.

What do you think?