Yahoo Autos When Gas Hits Four Bucks a Gallon, Logic, Research, and Analysis Go AWOL
As this is written, on Memorial Day weekend, the price of gasoline has been breaking records every week for the past month, exceeding four bucks a gallon here in bucolic Ann Arbor, Michigan.
Nobody likes to see the price of anything quadruple in 10 years, particularly gas, a substance of which we buy about 400 million gallons every day. The skyrocketing price is particularly galling at a time when the economy is slowing and many people are feeling poorer as their home values are falling. And there’s not much most of us can do about it. After all, if the price of peaches suddenly triples, we can buy plums or nectarines more easily than we can save gas by switching to high-mpg vehicles or moving closer to our jobs.
Predictably, the politicians and Sunday morning gasbags have worked themselves into a lather on this subject, blaming the usual suspects and avoiding realistic actions.
In early May, for example, President Bush traveled, hat in hand, to Saudi Arabia, asking for an increase in oil production. Dumping more crude oil on the world market would certainly reduce prices, though I don’t know if the Saudis are actually capable of extracting more oil. But why would they want to? Do any farmers in Nebraska sell their corn for $3 a bushel when the market is $4—up from $2 in the past couple of years? Does Tom Cruise cut his $25 million-plus-per-picture fee to make theater tickets more affordable?
Rather than asking the Saudis to act against their own interests by pumping more oil, we might consider pumping more ourselves. We know that there’s plenty of crude in the Arctic National Wildlife Refuge in northeastern Alaska. It’s not enough to supply our needs forever, but an extra few million barrels would be useful right about now. Yet this drilling has been prohibited because it might somehow harm the environment and its wildlife. I’ve driven along the Alaska pipeline from Fairbanks to the oil fields in Prudhoe Bay, and the operation is clean. Oil is black. Snow is white. Leaks are obvious. There aren’t any. Yes, it would take a decade to bring the ANWR oil on line. But as Jay Leno has pointed out, that’s what objectors to pumping this oil were saying 10 years ago.
There’s also plenty of oil to be had off the coasts of California and Florida, states that rank first and fourth, respectively, in population and gas consumption. Most such drilling has been banned since an oil spill occurred off Santa Barbara back in Jimi Hendrix’s heyday. Meanwhile, the technology used in offshore drilling has improved immensely. During the ravages of Hurricane Katrina, some 113 offshore oil platforms in the Gulf Coast were destroyed, yet the oil leakage was minimal (less than 10 percent of the Exxon Valdez incident). Perhaps it’s time that we brought more oil out of the ground ourselves rather than begging others to do so.
Then there’s the demonization of the big oil companies. Some simpletons actually think that the increase in the price of gasoline over the past few years goes directly into the oil company coffers. The fact is that the big American oil companies own relatively little oil in the ground. They have to buy crude oil on the open market in order to have something that they can refine into gasoline, diesel oil, jet fuel, and all of the other oil products. A barrel of crude oil contains 42 gallons and currently costs about $130. That means the raw material costs $3.10 a gallon. For finding the oil, getting it out of the ground, transporting it to a refinery, turning it into gasoline, and distributing that gasoline, ExxonMobil cleared about 58 cents per gallon in 2007, based on the figures in its annual report. Of that 58 cents, Exxon paid about 25 cents in federal income tax. The feds also collected 18.4 cents of excise tax per gallon. Meanwhile, here in Ann Arbor, the state of Michigan collects 19.875 cents per gallon of “excise and environmental” taxes, along with 24 cents of sales tax (at $4.00 per gallon). So ExxonMobil nets 33 cents per gallon, while our federal and state governments take 87 cents per gallon.
Still, that’s an excellent profit, but so what? ExxonMobil is an American company, owned largely by American shareholders, employing tens of thousands of American white-collar and blue-collar workers at high wages. We need more companies like it to leverage our superior technical expertise and maintain our high living standard.
There’s also precious little discussion about how the plummeting value of the dollar has affected oil prices. If we go back to the year 2000, the euro was worth 82 cents. Crude was fluctuating at about $30, or 36.5 euros. Today, because our politicians have degraded the value of the dollar by incessant deficit spending and enacting various fiscally unsupported future programs, the euro has now appreciated from 82 cents to about $1.60. As a result, while crude has quadrupled in dollars—from $30 to $130—it’s barely doubled in euros, from €36.5 to €80. Had the dollar only maintained parity with the euro, crude would cost about $80 a barrel and gas would be less than three bucks at the pump.
If there’s been one benefit of high gasoline prices—at least for environmentalists—it is to motivate Americans to choose more-fuel-efficient vehicles and drive less. Yet many of the same politicians who have argued strongly for reductions in greenhouse-gas emissions to battle global warming—such as all three remaining presidential candidates—also are trying to reduce the price of gasoline, which will simply encourage Americans to go back to driving more, in less efficient vehicles.
Finally, instead of doing anything sensible, Congress last week voted to authorize the Justice Department to sue OPEC because the organization declined to increase oil production to help reduce high prices. I rest my case.
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