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Gas price artificially high?

I'm wondering if the price of gas is artificially high. Does anyone have any good links to explanations of how the price of gas is determined? Is it really just supply and demand or is there something crooked going on here?
Permalink 4461766532422E 
March 6th, 2005
A large bit of the gas price is tax.

The price of crude oil on the world market fluctuates mostly due to political reasons, and production volumes are also controlled by an OPEC consensus.

But, US gas prices are actually ridiculously low.
Permalink Flasher T 
March 6th, 2005
... or European taxes ridiculously high, perhaps? A swingeing excise reduces pollution and makes sure the population pays some tax, somehow, such as in Italy before the EEC formed.

BTW Oz ULP is now back above 1AUD/litre. Ouch. Most of it is tax.
Permalink trollop 
March 6th, 2005
I think in the UK it would be the equivalent of $AU1.90
Permalink Simon Lucy 
March 6th, 2005
"Gas prices are lower than they used to be. They are actually lower now than they were 25 years ago. Yes, they’ve risen sharply over the past six years, but they are lower today when you adjust for inflation."

http://www.cspnet.com/ME2/dirmod.asp?sid=&nm=&type=Publishing&mod=Publications%3A%3AArticle&mid=8F3A7027421841978F18BE895F87F791&tier=4&id=7350A462043E4BDE8B4A26F3DB6A9720
Permalink Almost Anonymous 
March 6th, 2005
In the case of the actual gasoline, we in the US actually pay slightly more than the Europeans do. It's because we have higher transportation costs. The rest of the difference is all tax.

One thing that I finally got a good answer on was "Why do the prices at the stations go up immediately whenever there's a disruption in the supply?" It turns out that the reason the prices go up right away is that the price on the pump reflects the cost to the station of refilling their storage tanks. So if the tank is 1/2 full of gas they paid $1.759 for, and now world markets say gas is $1.809; to fill up that empty 1/2 tank now costs them (and you!) another nickel per gallon.
Permalink example 
March 6th, 2005
As long as people buy gas guzzlers as fashion statements, then gas/petrol is artificially low.

At the wholesale level, the difference between "brand X" and name brand gas is around 25 cents a gallon. Which strongly encourages franchise holders to cheat and buy brandX gas. So the major brands hire folks (of which I *used* to be one) to go to gas stations to buy samples of gas to send back for testing. SWRI does most of the testing for most of the majors, and they receive around 20k samples per week nationwide. BrandX and name brand gas comes from the same refinery. All that's different are the taggants added to differentiate between them. You need a gas chromatograph to distinguish brands. Much cheaper instrumentation will tell if the station operator has been mixing regular gas with mid grade or super. Your local state is responsible for ensuring that when the pump says 1 gallon, it really is one point zero zero gallons dispensed.

So, who pays the 25 cent difference between name brand and brand x? You do. After all, it went into advertising to drive up the demand for higher price margins.
Permalink Peter 
March 6th, 2005
Personally I think it would be helpful if Congress implemented a $3/gallon gas tax and eliminated federal income tax for everyone making under $120,000.
Permalink Ben Bennington 
March 6th, 2005
Peter, that's very interesting. I have an old clunker that needs super to drive without pinging, but there is one particular station where when I get super, I still get the pinging. I had decided that they were cheating and putting regular in the super but I thought it wasn't possible since surely that is all highly regulated.
Permalink Ben Bennington 
March 6th, 2005
"Personally I think it would be helpful if Congress implemented a $3/gallon gas tax and eliminated federal income tax for everyone making under $120,000."

Ugh.

Yes and no, no, NO!

I agree with higher gas taxes, to encourage research into fuel efficient cars, efficiencies in refining, conservation, and alternative energy sources.

But everyone should pay federal income tax, even if it's only $5 a paycheck. I want everyone to be aware of federal taxes and feel burdened by them. That's the only way fiscal responsibility could ever become a reality. Though I'm not holding my breath, if a significant portion of the population paid no federal income tax, it's over.

Philo
Permalink Philo 
March 6th, 2005
Where I live, the gas grades regularly offered are regular, mid-grade and premium. Super (the grade above premium) is not usually seen. I forget the posted octane ratings, and I don't feel like going round to my local gas station to check.

Now all three grades are dispensed from the one nozzle, and the gas station only has two storage tanks supplying each pump. Therefore I surmise that one tank holds regular and the other holds premium. Mid-grade is presumably dispensed as a 50/50 mix of the two. Given the mixing system that must exist, it wouldn't take much to tweak the settings so premium is dispensed as a 95/5 or 90/10 mix of premium and regular. Hmmm.

But, did you know that when you fill up, you could be buying water with your gasoline? How do you like them apples?

What happens is that as the underground storage tank empties, it draws humid air down into the vapor space. The water in this air condenses on the cold walls of the tank and runs down forming a puddle on the bottom of the tank under the gasoline. Since they add oxygenates like MTBE to the gas, the gas becomes able to absorb a certain amount of water. So guess where this puddle under the gas goes?

The situation gets even worse when gas stations try to optimise the supply chain. When they do this, they keep the gas level in the storage tanks as low as possible to minimize the capital tied up in inventory. This means there is more tank wall exposed to condense water, and less gas present to absorb it, giving a higher proportion of water in your gasoline.

So if you drive away from a gas station and your car is pinking, it might just be because you bought a bunch of water with your tank full of gas.
Permalink Ian Boys 
March 6th, 2005
So Ben Bennington is the bastard child of Dan Denman, huh.
Permalink Flasher T 
March 7th, 2005
++That's the only way fiscal responsibility could ever become a reality.

Consolidating taxes so that one actually saw all the tax they paid in a year could also help in this respect. You have to pay very close attention to realize just how much of your money ends up in governments' wasteful hands.
Permalink I am Jack's tax tinkering 
March 7th, 2005
The price of a barrel of oil is not REALLY the CURRENT price of a barrel of oil. It is more the EXPECTED, FUTURE price of a barrel of oil.

That 'FUTURE' in there means nobody really knows what the price will be -- it depends on political situations, how much they pump, and at what price the producers of crude are willing to sell.

That 'EXPECTED' term in there means the expectations of what it will cost drive the price.

This means that a $55 barrel of oil (up from $26 before the Iraq war) is really an expression of the future expectations of a lot of people -- oil traders, brokers, stock market forecasters. It's not REALLY what the oil will sell for.

Now, having said that, when the FUTURE barrel of oil price goes up, the PRESENT price of our gasoline goes up. In theory, this shouldn't happen. Our gasoline price should go up when the $55 barrel of oil actually arrives at the pump -- which is some time after it's purchased, refined, and delivered. In practice, the Gasoline sellers can put in some cushion, and raise the current price of gas based on the expected future cost of replacing that gas.

Having said all that, what is the 'true' price of a barrel of oil? Nobody is making any new oil, after all. It's a non-replaceable natural resource. Sure, there's a lot of it still in the ground, but our consumption rate is huge compared to most other natural resources.

When it runs out, its cost will rise to the point where other, "alternative" energy sources become economic to produce, and we will produce them then. No sense getting off the oil economy before it's necessary.

So, back to the main point, the price is NOT "artificially high", it's high based on speculation about what will happen. Now, if the price went back to $26 per barrel, and we were STILL paying $2.00 per gallon (in the U.S., cheaper than bottled water, actually) THEN the price would be artificially high.
Permalink AllanL5 
March 7th, 2005
Personally I hope your "gas" prices double or triple. Maybe that way you'll stop driving such hopelessly uneconomical cars and ruining the planet for the rest of us.
Permalink Mr Jack 
March 7th, 2005
Personally, Mr. Jack, I agree with you. I'd much rather spend $3.00 for gasahol in order to develop a hydrogen-based renewable energy-based economy. Oil is MUCH too valuable to waste on powering cars with it.

We use it for plastics which last a really long time. We use it for fertilizers. We use it for lubricants.

Unfortunately, with the Bush adminstration America has lost its conservative pay-as-you-go approach, for a 'borrow-it-from-the-future, Not MY Taxes' approach. As such, our only proposed solution to the oil problem is to drill for more in Alaska. ANYTHING that raises any tax is considered not-an-option. Even balancing the budget only gets lip service.
Permalink AllanL5 
March 7th, 2005
What decides the price of oil is simple supply and demand. Now as has been pointed out demand is not based on present needs but on the markets guess as to future needs and what fture supply will be.

So if they think there is going to be a war disrupting supplies or a cold winter or whatver the prices will reflect that. However this speculation won't hold the price artificially high or low for long - the real demand will soon kick in.

Now one thing to remember is that a small increase in demand can cause a much greater increase in price. The present cold snap in Europe and the increase in Cnina's demand to fuel its industry and increased comsumption has not doubled the demand, as it has doubled the price.

A couple of other things to bear in mind. The oil prices you read about in the papers are prices on the spot market. A lot of oil is sold at a pre-arranged price - Venezuela has a long-standing agreement with the US for example.

Secondly the dollar has fallen in value compared to European and Asian currencies. As a result those countires have the price increase mitigated, and of course the $51 a barrel an oil-priducting country might receive now won't buy it three times as many goods as the $17 it got before because of this.

Thirdly many countries ration their output of oil in order to keep the price high. However because of the high costs of keeping wells idle, Saudi is probably the only country with spare capacity (about 1.5 million barrels a day) to turn the tap on and off at will It uses that to try and stabilize the market since it prefers long-term stability to short-term gain, and also doesn't want to junk its onw investments in the West.
Permalink Stephen Jones 
March 7th, 2005
+++ What decides the price of oil is simple supply and demand. +++

And screwing with supply by OPEC to heighten demand. :P
Permalink muppet 
March 7th, 2005
Don't forget the artificial scarcity from all those "accidents" and "scheduled maintainence" at the refineries and pipelines. Especially in regions with mandated gasolenes (such as California).

Gasohol is one of those odd boondoggles. It uses more energy to manufacture it than is generated when burning it. It is currently a way for large companies to suck huge amounts of subsidies from the government. "think of the farmers" replaces "think of the children" in this case.
Permalink Peter 
March 7th, 2005
Actually muppet there is also a lot of screwing with supply from the multinationals. One fo their favourite tricks is when a cold winter is coming up in Europe to buy up all the spot market and ship it off to Asia.
Permalink Stephen Jones 
March 7th, 2005
Gas prices are up because of obsolete and over-reaching environmental rules.

50 different blends around the country tie up pipelines and refineries every spring during changeover to reformulated gas. These regulations from the 80s are no longer needed with all the clean cars being bought each year.
US Gasoline Map
http://www.mobil.com/USA-English/Files/US%20Gasoline%20Map%20100102.pdf

Special gas blends drive costs up - Boston Globe, May04
http://www.boston.com/business/articles/2004/05/20/clean_air_rules_fuel_gas_run_up?mode=PF

In the last 20 years, the number of refineries in the U.S. has fallen two-thirds to about 150. US refineries were unlikely to spend more capital because they had earmarked $20bn to upgrade plants for stricter emissions laws, leaving them with little money to expand capacity.

******
And don't forget the gas taxes:
http://api-ep.api.org/filelibrary/Historical%20Trends%20in%20Motor%20Gasoline%20Taxes%201918-2002.pdf
Permalink Mike 
March 7th, 2005
"It uses more energy to manufacture it than is generated when burning it."

This is true. When I looked into this a few years ago, gasahol cost about $4.80 to produce one gallon. I think it consumed a gallon of liquified natural gas (fertilizer) and two gallons of diesel fuel (tractors) during the whole process, so it dos more to consume real oil reserves than it replaces. Congress ordered the taxpayers to subsidize almost all the cost so that it can be sold for the same price as regular gas. Using gasahol in incredibly irresponsible.
Permalink Scott 
March 7th, 2005
---"I think it consumed a gallon of liquified natural gas (fertilizer) and two gallons of diesel fuel (tractors) during the whole process,"----

which tells us a lot about what is wrong with American agribusiness.

Anybody would tnink people didn;t eat before they discovered the internal combustion engine.
Permalink Stephen Jones 
March 8th, 2005

This topic was orginally posted to the off-topic forum of the
Joel on Software discussion board.

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