With gas prices soaring I thought it might be nice to see exactly what makes up the pump price.
What I find misleading on this chart is the grouping of profit and refining costs together. Many complain that it is the oil companies who are driving up the costs to fatten their pocketbooks. If a total of 15% of gas prices go to both profits and refining costs, then oil companies have to be making a very small profit.
Once you take all the refining costs out of the equation and the profits for the local gas station, the oil companies are left with a very small piece of the pie in terms of profits.
The areas that can be changed easily by government are the taxes and the refining costs (which would also lower the overall price of crude oil).
I am sick of hearing politicians complaining about high gas prices and linking it to whatever their political cause of the day may be. Both state and federal governments have the power to lower gas prices right now, by lower the taxes that we pay. That would be a simple, quick way to ease the burden on American drivers.
The second way which would have a smaller short term effect, but larger long term effects is eliminating all the varying blends that manufacturers are required to make. Oil companies have to spend considerable amounts refining the many different fuel types across the nation, specifically California (which has the highest gas prices as a result). If we removed all of these from the market and allowed the oil companies to make one blend that could be sold through out the country, initially the refining costs would drop lowering prices.
The greatest benefit on prices would be felt long term with a stablization of the market. With less blends to make, gas producers would be able to ship the same gas all over the country. This would eliminate (or at least lessen) spikes in price due to refinery problems (natural disasters, mechanical errors, etc.). The price of crude oil would not be so voiltile because of the varying demand shifts and concerns from different blends.
While none of these suggestions are likely to take place, I can give you some good news about gas prices. They are well under the rate of inflation and the cost of many other nations. If gas cost $1.00 a gallon in America in 1975, today it should cost $3.75. In 2004 England, gas prices are upwards of $5.40 a gallon, with a very large amount of that coming from taxes. In 2000, an OPEC nation earned just over $32 on a barrel of oil they sell. That same year, the British government earned about $150 on that barrel due to taxes.
Despite the recent surge, we are still paying historically and internationally low prices, which could be even lower if our government decided to inact meaningful energy legislation instead of window dressing.