So I heard today that gasoline consumption today is at the same level as it was in 1997.
Not only that the supply side of oil is up too.
So what that means is demand is pretty much a constant. So why is the price of a gallon og gasoline scraping $4 again?
If you remember your micro and macro economics, you recall the Supply/Demand curves.
If supply is low and demand high, price rises.
If supply is low and demand low, prices reach equilibrium
If demand is low and supply is high, prices are reduced
If demand is high and supply is high, prices reach equilibrium.
But what we have in gasoline is a demand that is lower, with a supply that has increased. So prices should drop. But they don’t.
There are a few reasons why this is the case.
First of all energy in general is traded on speculative markets. Those markets have trading on spot or contract, and vary due to external influence such as instability in the middle east. But the thing about crude oil in the U.S. is that the majority of ours now comes from our neighbor to the north, Canada. So how doe sinstability in the middle east and Persia influence that? I can see how, if those soures in the middle east and Persia went offline, the demand for Canadian oil might increase. Note I say might, not will.
I say it might because there are several other oil sources around the globe that play into the equation.
But the main point I am making is that gasoline prices run completely counter to the supply and damand curves that have long been a staple of economic theory.
Then recall that the distribution side of energy is gamed too. For examle, the refineries in the U.S. are deliberately kept outdated and in short supply to control the price per gallon.
So I have now pointed out two major factors that are used to control the price of gasoline. Speculation for the raw material that ignores the supply and demand theory, and control of the refining and distribution channels.
Beteween the two outlined above, we can derive an estimate of the cost of a gallon of gasoline if the market weren’t gamed, and if refining and distribution weren’t rigged.
Gas prices where I am are currently about $3.89 a gallon Of that about 50 cents is federal and state taxes.
So the raw price per gallon is $3.39. The gas station gets anwywhere from 1 cent to 7 cents per gallon, so I’ll say 5 cents. We’re own to $3.34 now.
Now refining and distribution probably account for $2.00 of the price of a gallon. Lets say that dropped to 1/3 the cost, or 67 cents. That raw cost of gasoline would now be down to $2.01, plus dealer 5 cents is $2.06, and with taxes $2.56 a gallon.
Now I’ve focused on refining and distribution. Focus on the speculation on oil. It’s currently trading at about $115 a barrel. But what if it dropped in half, to $57 a barrel. Still a high price but the raw cost of $1.34 from the above would probably drop to half too if the system weren’t gamed. Figure on say 70 cents a gallon.
So 67 cents for refining and distribution, a raw cost of 70 cents, and taxes and profit of 55 cents gives $1.92 !
So bascially $3.89 less $1.92 leaves $1.97 of pure profit to the oil companies in every gallon.
Since 400 million gallons are sold every day, that’s an additional $788 million per DAY, or $287 Billion per year. That’s just the excess.
Get mad, get angry.