Just a bit about gasoline prices

Tuesday, April 25, 2006
The National Association of Manufacturers blog says that Gas Prices Outpaced Only by the Rhetoric (ht: Powerline). It provides a good set of links that are useful for gaining a basic familiarity with the factors that drive oil and gasoline prices. The grafs that strike me as most interesting (but I invite y'all to read the whole thing):

For all the theatrical political venom directed at the oil companies, the US-based companies represent only 13% of the world's output, a mere drop in the bucket. The real powerhouses are the state-owned operations in Russia, China, Venezuela, etc. All the finger pointing, all the speeches about price-gouging and windfall profits won't change that simple fact. And it won't alter the law of supply and demand.

At the end of the day, there are only so many solutions: drive down global demand or drive up domestic supply. If we could only harness the hot air being generated by the politicians and the media these days, we might solve the problem once and for good. In the meantime, we must conserve (manufacturers are leading the way in doing it and in inventing the newest technology) and we must search for new sources of fuel. Manufacturers there, too, are the ones who will invent and perfect it. But we also must continue to tap domestic supplies of oil, both on shore and off.

Here's a Department of Energy chart that tracks the price of gasoline (including taxes) on a weekly basis for Belgium, France, Germany, Italy, Netherlands, and the UK since 1/1/96 through 4/10/2006. The price of a gallon of gasoline has remained more than twice as expensive in all those countries over the past 10 years. If Americans think they have pump shock at pumps here they should make a point of going to Europe and purchasing a tank of petro at the pump. Standard European pricing for petro makes rental car company pricing seem sane.

Here's an MSNBC article about gas prices in other places. This article uses the same DOE source I linked above but also brings us this interesting little tidbit:

As of April 10, drivers in the Netherlands were paying the equivalent of about $6.73 a gallon at the pump. The gas itself cost $2.61; the rest — $4.12 — represented tax. That’s a 158 percent tax.
Read that and weep.

Here's a CNN Money article (a bit dated, nearly a year old) that looks at gasoline prices around the world. In Venezuela, in May of 2004, the price per gallon was only $0.14. Yes, that's fourteen cents. Anyone wanna go live in Venezuela or trade Bush for Chavez straight up? In fact, I'm pretty sure few of us want to live in the places where gasoline is less expensive than it is here in the US.

Lastly here is another old article (Oct. 2005) - High Oil Prices Met With Anger Worldwide

Rising fuel prices are stoking popular anger around the world, throwing politicians on the defensive and forcing governments to resort to price freezes, tax cuts and other measures to soothe voter resentment.

The latest example came this weekend in Nigeria, where President Olusegun Obasanjo promised in a nationally televised Independence Day speech that the cost of gasoline would not increase further until the end of 2006, no matter what happened in global oil markets. He acted after furious demonstrations shut down whole sections of major cities around the country over the past several weeks.


Update: Instapundit points to
Record Crude Oil Prices (Nominally Speaking) which, in turn, points to this Energy Bulletin article reporting on a Goldman Sachs report, which claims:

During 1980-1981, gasoline spending in the United States corresponded to an average 4.5 percent of GDP, 7.2 percent of consumer expenditures, and 6.2 percent of personal disposable income, Goldman said.

"Our new $50-$105 per bbl super spike range perhaps conservatively corresponds to gasoline spending in the United States that reaches 3.6 percent of forecasted GDP, 5.3 percent of consumer expenditures, and 5.0 percent of personal disposable income.

Goldman said that were it to assume gasoline spending needed to reach 1970s levels to destroy demand, its upside super-spike estimate would be $135 per barrel for New York crude."


Hmmm... That suggests that, compared to 1981, in 2006 the US spends 20% less as a percentage of GDP, 26% less as a percentage of comsumer expenditures, and 24% less as a percentage of disposable income. 1981, BTW, was 2 years after the inflation adjusted record price for oil.

12 comments:

terrye said...

knucklehead:

Europeans do not drive the way we do. America is a lot bigger than Belgium. We do not have the mass transit they do and so it is like comparing apples and oranges. I live 700 miles from my brother, you could drive across several European countries covering that many miles.

I do agree that that prices are set on a world market and are effected by many things that have nothing to do with American oil companies. But that does not change the fact that it pisses people off to spend $40 bucks to fill up the car and buy gas for the lawn mower.

I heard on the radio today that Bush is going to release oil from the federal reserve.

Skookumchuk said...

. . . drive down global demand or drive up domestic supply.

Hey - we all put Gaia-friendly sails on our Priuses, shut off the engines and tack down the street whenever we have a wind.

(Prolly just one way traffic between stop lights though).

Knucklehead said...

Terrye,

Comparisons of European driving habits - and costs - with American driving habits and costs would yield some interesting lessons for Americans (and Europeans). European governments have long discouraged the ubiquitous driving that we take for granted in the US. All costs are higher. It is much more difficult and expensive to get a driver's license in the first place. Gasoline is twice as expensive. Insurance is more expensive. Taxes and other fees are significantly higher.

And there are costs associated with driving less. Using public transportation means one has to work to the bus schedule. Leave the house 10 minutes earlier to walk to the bus stop - fair weather or foul. One rides one's bicycle, or walks, to make a quick run to the convenience store.

There is much room for Americans to adapt our lives to driving less. But we'd scream bloody murder before we did any of them.

On the Euro side of the learning curve I'd be willing to bet they'd be far less fond of their little gas-sipping econoboxes if they spent as much time in autos as the average 'murrican does.

BTW, my observations over the years suggest to me that Europeans have moved more in the American direction. Families that would not have considered owning a car 10 years ago now have two in the driveway. And more and more of the youngsters expect to have an auto available.

But the fact of the matter is that US drivers pay pretty middle of the road prices for gasoline. We are so fond of our autos because we have long since come to expect and demand the convenience they provide. Put 100% tax on gasoline for a few decades and we could have the same level of public transport the Euros have. All we'd have to do is get accustomed to living differently.

terrye said...

knucklehead:

Like I said you can not compare the two, Europe is not America. I don't mean that to be critical but we have how many time zones? Think of how many Englands we could fit in Texas.

For those of us who live in rural America high gas prices really are a strain. And to them these prices are not middle of the road, they are high. If the increases had not come about in three years it might not seem so extreme, but most of the people I talk to feel like they are being robbed.

Now if we all live in three or four big cities and ride a bus or a train it might be different. But many Americans [like me] do not have that option. I drive or I am unemployed. Those are my choices.

I cover three counties in my job. I don't do it for fun or enjoyment or because I get a kick out of driving, it is just the way it is.

terrye said...

knucklehead:

I saw this at AJ's :

Last January, upon the news of historic record breaking profits in the oil industry, I called for investigations into gas prices because the oil companies had claimed the price hikes we saw post Katrina were needed to repair infrastructure. Since investment into repairs would impact profits, it did not take a rocket scientists to figure out there were lies promulgated as fact. Want to raise your prices? Fine, don’t pretend you are doing it because you need to. Well, the recent round of hikes smells just as fishy. And we do have anti-monopoly laws and laws against price fixing (I don’t want collusion in the government or national, critical industries). So I am glad to see Bush calling for an investigation, and not surprised to see the gas prices magically start dropping all of a sudden.

flenser said...

The data on the government site indicates that prices have increased in both the US and UK, but they have increased relatively more in the US.

There may well be an innocent explanation for this, but theres no harm in somebody looking into it.

Knucklehead said...

Terrye,

I don't mean to sound as if I'm arguing with you, or "AJ", but here's part of a comment by a "Steve" from the NAM blog I linked to:

As of April 25, 2006, 22 percent of the natural gas production in the Gulf of Mexico is still "shut in" because of the two hurricanes. More than 18 percent of the crude oil production is shut in. This means neither commodity is reaching the marketplace. The MMS reports that 66 drilling rigs and/or production platforms in the Gulf totally disappeared. More than 200 suffered major structural damage. But support companies in the energy industry are literally working around the clock to restore production and fix the platforms.

Which comes to Point 2. I work for an oil and gas engineering company that specializes in projects for smaller independents. We can barely manage the workload. We're trying to hire more engineers, but that labor pool is small. There just aren't enough qualified people for all the work that's currently out there. So even if the industry wanted to suddenly increase domestic production, the people to do it don't exist, the equipment suppliers have huge backlogs of orders so lead times are now a year or more for the high-dollar materials, raw materials like steel and alloys are once again on allocation due to high demand and there is a major shortage of welders, CDL truck drivers and people with general oil and gas experience.


Emphasis is mine but the reason I put the emphasis on it is that therein lies (assuming "Steve" is correct in his comment) soem explanation for why the "record profits" haven't been spent as much as AJ might suspect they should. Large companies don't normally pay for stuff until they receive it.

And here's another link, The Tax Foundation -= can't vouch for them, with an interesting tidbit:

...over the past 25 years, oil companies directly paid or remitted more than $2.2 trillion in taxes, after adjusting for inflation, to federal and state governments—including excise taxes, royalty payments and state and federal corporate income taxes. That amounts to more than three times what they earned in profits during the same period, according to the latest numbers from the Bureau of Economic Analysis and U.S. Department of Energy.

These figures do not include local property taxes, state sales and severance taxes and on-shore royalty payments.


The article goes further to talk about the effect of the last "windfall profits tax" on oil companies.

As you are, I'm just trying to learn and have some idea of what the actual story is as opposed to the media hype and finger pointing. Federal and state treasuries get a "windfall" in tax receipts whenever the oil companies get a windfall in profits. But they aren't telling us much about the one windfall while screaming about the windfall that produced it.

I don't think we're ever very well served by letting being "pissed off" direct policy. I'm not defending high gasoline prices or huge profits by oil companies. But where not going to improve anything by getting in a big huff and demanding "solutions" that don't solve anything.

The price of gasoline, net of taxes, is basically the same in the Netherlands (and everywhere else) as it is in the US. Is Exxon ripping the Dutch off also? Are all the worlds oil companies in collusion? Maybe, but perhaps we'd be well advised to be sure of that before we kill our oil companies in a fit of pique. We might need them someday. Hate Exxon all one wants to but I suspect they don't treat the people of the US any worse than the non-US oil companies do or would if there were no US oil companies to compete with.

Knucklehead said...

Flenser,

I didn't run the numbers through a spreadsheet to try and figure out whether or not US prices/gallon net of taxes have gone up more than, for example, the UK.

My quickie mental scan suggested that prices have gone up everywhere somewhat equally. If, however, US prices have "closed some of the gap" there are some potential explanations for that. We'd have to know how the prices are calculated. If the weaking of the dollar was not taken into account that could explain some relative increase in US prices vs. the UK and other countries.

And the fact that Gulf sources are not yet fully back on line either for crude or refined products surely has some impact.

And last, but perhaps not least, have a gander at this Betsy's Page look at a WSJ article on the topic of how the Congress itself has contributed to increased gas prices in the US.

terrye said...

knucklehead:

I posted AJ's remarks to demonstrate that the questions that are being asked are not only coming from the left.

I grew up in Oklahoma, my father was a roughneck when he was young and later worked for CP, selling oil tools. I remember when they started capping wells in Oklahoma. They said back then that oil would have to hit $58 a barrel to justify uncapping them. People in Oklahoma are still waiting for the oil companies to back and uncap all those wells. There is still a lot of oil in the Anardoka basin.

I am well aware of the fact that production needs to be increased and what is more I know that it takes years to respond to stresses like these. There is no way to get these things done that quickly. Bush has been calling for increased production and the building of nuclear reactors and refineries for years but so far as I know things are not exactly on fire in response to either claim.

We have private industry in control of energy production in this country and while government can give and take away permission to drill in certain places and environmentalists can make the building of new refineries and reactors problematic to say the least...it is private industry that must actually do the investing and building and drilling and I am not sure they are all that fired up to increase production. After all, it means lower prices.

So I think it is complicated and I am not saying anyone is ripping anyone off...but any time you see price increases like this people will wonder.

Knucklehead said...

Terrye,

I know it isn't just the "left" that wants heads on pikes over the price of gasoline.

My blathering about this is in the same vein as your post yesterday about wishing people would look for ways to solve the problems at hand rather than simply screeching about them. I'm not acusing you of screeching about this problem of high gas prices. I'm merely doing my infinitesimal little bit to point out that this is not some unprecedented situation and that burning oil execs at the stake isn't going to solve anything.

I'm getting the same lame (but amusing nonetheless) nonsense in my inbox that I got 6 months ago when prices spiked. It was the end of the world as we know it until, of course, prices eased and then everyone went about their merry business.

Rick Ballard said...

Knuck,

That's a very informative piece. The update puts the best peerspective on pricing that I've seen. Did that chart that you posted showing the gas price/popularity correlation have a historical series?

Knucklehead said...

Rick,

Thanks for the kind words. I found pouring over that stuff informative (or at least thought provoking).

The popularity vs. gas prices chart was only for Bush's time in office (it starts at Jan. '01).

It would be interesting (but beyond me) to have a look at a longer historical series. It might show, for example, that it isn't so much gas prices that correlate with popularity but whether spending on gasoline is growing or shrinking as a proportion of consumer expenditures or disposable income.

Whatever the correlation, if indeed such a correlation holds for some long period of time, it would also be interesting to see what, if anything, interrupts/supercedes the correlation. In times of price/expenditure stability are we just all happy as clams (or quietly sullen) about the POTUS or do other factors then drive popularity ratings. And can anything overcome negativity when the numbers are going the "wrong" way or, conversely, can anything spoil optimism when the numbers are going the "right" way.

That would take some effort from some data hounds and statisticians.