I changed my mind on being lazy when I ran a google search on "production cost gasoline". I could not believe when I read an article put out by the Department of Energy that the government actually honestly explained how and why gas prices ascend to their high levels. The article makes several good points to which I wish to draw attention.
First, gasoline prices volatilize with demand, the article focusing primarily changes in seasonal demand while omitting changes in seasonal formulation. Every season, refineries shut down for a few weeks to change their formulation in order to comply with federal regulation. This creates temporary shortages, but the resultant price hikes follow the ratchet effect, rarely falling back to the original price prior to the artificially induced shortage. Oxygenated fuels ostensibly help the environment yet cost the same or more than traditional fuel. Even when you pay the same per gallon, your per mile cost for an oxygenated fuel rises. I tried in winter NOT to buy oxygenated fuel as it reduces your fuel economy by chemically lowering the flash point of 2,2,4-trimethyl pentane through oxygenation into a tert-butyl ether thereby reducing its effective energy value
On the subject of oxygenated fuel, we cannot ignore the use of ethanol in gasoline as already constituted. With higher demand for ethanol as an exclusive or blended fuel, government raises the cost of regular unleaded as an indirect and unintended consequence
The article even deals with why California's gas costs so much- all the regulations and requirements necessary to bring a gallon of gas to market for you. In addition to federal and state taxes, they typically have municipal tax meaning that if you buy gas in california on vacation, you put money into their coffers for their programs. Nevada suffers aftershocks of the California policy, being largely dependent on California refineries for gas, meaning that Nevada residents must pay for California standard gas despite the absence of statutes in Nevada demanding those blends.
A particularly stunning graphic in the article attributes correctly approximately half (or perhaps more now) of the cost per gallon to straightforward acquisition from OPEC members or other trading partners. I love how they lump "refining costs and profits" together at 19% without mentioning that profit constitutes a minute fraction even of that 19% figure.
Accurately downplaying the role of hurricane Katrina on gas prices, the DoE doesn't address the fact that the reason why the impact on price was as great as it was revolves around the diminished refining capacity. Many refineries are on the TX coast, not because other places aren't good, but because they existed at the time of the Clean Air Act which basically made refinery construction so astronomically expensive so as to remove all incentive for profit (see my previous entry on incentive).
The article leaves out the fact however that hidden among the costs of acquisition there are more fees that GO TO THE FEDERAL GOVERNMENT. Of the money you pay at the pump, the two biggest beneficiaries are the originating source/nation and our own government. Consider: import fees, transport fees, environmental compliance fees, paperwork fees, licensing, reformulation expense (mandated by the Clean Air Act), disposal fees, environmental hazard compliance costs, ad infinitum. All of these figure into the price it costs once Chevron buys the gas in order to sell it to you. Plus, on top of all that, consider how often gas is taxed: at acquisition when Chevron obtains it, at disposition when Chevron sells it, at distribution when stations obtain it, and at consumption when we burn it. The same commodity is taxed multiple times. Chevron pays taxes before they can even sell it, then they pay a confiscatory 40+% in income tax on their "profits".
Calculate together federal tax ($0.19/gal) and state/local taxes (on average $0.31/gal, but up to $0.50/gal) together with costs of acquisition, compliance, and taxes on chevron profits, and the government earns over $1 per gallon compared to Chevron which keeps about $0.09/gal. Some people argue that Chevron revenues last year topped $100 billion, but they ignore the fact that Chevron, after all the other taxes they pay along the way, paid over 40% in corporate income tax. How much more does Senator Clinton think she can take from Chevron without driving them out of the business?
Ask Mark Levin, and he'll tell you that government is the biggest strain on your wallet. For all their rhetoric about windfall profits for Big Oil, government rakes in far more revenue for costs of production than Chevron ever will.
First, gasoline prices volatilize with demand, the article focusing primarily changes in seasonal demand while omitting changes in seasonal formulation. Every season, refineries shut down for a few weeks to change their formulation in order to comply with federal regulation. This creates temporary shortages, but the resultant price hikes follow the ratchet effect, rarely falling back to the original price prior to the artificially induced shortage. Oxygenated fuels ostensibly help the environment yet cost the same or more than traditional fuel. Even when you pay the same per gallon, your per mile cost for an oxygenated fuel rises. I tried in winter NOT to buy oxygenated fuel as it reduces your fuel economy by chemically lowering the flash point of 2,2,4-trimethyl pentane through oxygenation into a tert-butyl ether thereby reducing its effective energy value
On the subject of oxygenated fuel, we cannot ignore the use of ethanol in gasoline as already constituted. With higher demand for ethanol as an exclusive or blended fuel, government raises the cost of regular unleaded as an indirect and unintended consequence
The article even deals with why California's gas costs so much- all the regulations and requirements necessary to bring a gallon of gas to market for you. In addition to federal and state taxes, they typically have municipal tax meaning that if you buy gas in california on vacation, you put money into their coffers for their programs. Nevada suffers aftershocks of the California policy, being largely dependent on California refineries for gas, meaning that Nevada residents must pay for California standard gas despite the absence of statutes in Nevada demanding those blends.
A particularly stunning graphic in the article attributes correctly approximately half (or perhaps more now) of the cost per gallon to straightforward acquisition from OPEC members or other trading partners. I love how they lump "refining costs and profits" together at 19% without mentioning that profit constitutes a minute fraction even of that 19% figure.
Accurately downplaying the role of hurricane Katrina on gas prices, the DoE doesn't address the fact that the reason why the impact on price was as great as it was revolves around the diminished refining capacity. Many refineries are on the TX coast, not because other places aren't good, but because they existed at the time of the Clean Air Act which basically made refinery construction so astronomically expensive so as to remove all incentive for profit (see my previous entry on incentive).
The article leaves out the fact however that hidden among the costs of acquisition there are more fees that GO TO THE FEDERAL GOVERNMENT. Of the money you pay at the pump, the two biggest beneficiaries are the originating source/nation and our own government. Consider: import fees, transport fees, environmental compliance fees, paperwork fees, licensing, reformulation expense (mandated by the Clean Air Act), disposal fees, environmental hazard compliance costs, ad infinitum. All of these figure into the price it costs once Chevron buys the gas in order to sell it to you. Plus, on top of all that, consider how often gas is taxed: at acquisition when Chevron obtains it, at disposition when Chevron sells it, at distribution when stations obtain it, and at consumption when we burn it. The same commodity is taxed multiple times. Chevron pays taxes before they can even sell it, then they pay a confiscatory 40+% in income tax on their "profits".
Calculate together federal tax ($0.19/gal) and state/local taxes (on average $0.31/gal, but up to $0.50/gal) together with costs of acquisition, compliance, and taxes on chevron profits, and the government earns over $1 per gallon compared to Chevron which keeps about $0.09/gal. Some people argue that Chevron revenues last year topped $100 billion, but they ignore the fact that Chevron, after all the other taxes they pay along the way, paid over 40% in corporate income tax. How much more does Senator Clinton think she can take from Chevron without driving them out of the business?
Ask Mark Levin, and he'll tell you that government is the biggest strain on your wallet. For all their rhetoric about windfall profits for Big Oil, government rakes in far more revenue for costs of production than Chevron ever will.
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