UPDATE: 24 Feb 2012 (Speculation driving up the cost of crude by 30% – source: Fox News investigation, Bill O’reilly )
My frustration and anger over pump prices motivated me to find out, what’s going on here? What I learned may surprise you.
The pie chart. For starters lets break down the costs involved in the sale of one gallon of gas, it works out like this: 76% represents the cost crude entering through the refinery gate. This amount includes the costs for exploration, drilling/pumping, transportation and profit. Profit is about 6%. Another 6% goes for refining plus the refiners profit. Then 6% goes for distribution, marketing, transportation and retail profits. Taxes make up about 12% (roughly .43 cents per gallon as a national average) and this includes both state and federal taxes.
Oil prices are directly related to gasoline prices – for every one dollar increase in the price of a barrel of oil (42 gallons of oil), gasoline prices rise 2.5 cents per gallon at the pump. Thus, a $10 increase results in about a 25 cent increase for a gallon of gas. Let’s check this out: In August of 2010 gasoline was priced at $2.68 a gallon for regular and crude was going for $68. Today a barrel sells for around $100-104 and the pump price is $3.58 on average. (CA is higher) Yep, that’s pretty close to being right on target.
Fast facts: U.S. refineries produce about 19 gallons of motor gasoline from one barrel of crude oil. The remainder of the barrel yields distillate and residual fuel oils, diesel, jet fuel, and many other products. The US consumes 18,690,000 barrels of oil per day. The next biggest consumer is China at 8,200,000 bbl/day. Japan is in 3rd place with 4,364,000 bbl/day. We consume 25% of the available world supply each year.
The drain on our economy. A Congressional report in 2008 said we exported $440B dollars that year as payment for the oil we imported. This was based on $90 a barrel oil and today its around $104. So add another 10%. I think we’re about to export around $480B for 2012. That’s a lot of money leaving our pockets.
Lets lay a fallacy to rest. US oil exports do not drive up your cost at the pump. Hard to believe isn’t it? Here’s the reason: We don’t export that much to affect supply and demand. Gibson Oil Consulting recently said, “The US only exports about 19,000 barrels of crude oil per day, every drop of it to Canada, as exports of convenience – from a US oil field to a nearby Canadian refinery rather than a distant – or fully utilized – US one. We also export over 1 million barrels per day of refined products.
Large portions of this exported material include things like petroleum coke, a residual refinery product for which there is little market in the US so it is sold to Mexico and elsewhere as industrial fuel. All of the things that we export have little market in the US, or they would be sold here. Even gasoline – Mexico cannot refine enough gasoline for its own use, so it must import gasoline, just as the US does. If there were shortages of gasoline in the US, it might be meaningful to talk about selling every drop here, but that is not the case. The fact that we export 183,000 barrels of gasoline per day has no impact on the current price, given that we consume 9,200,000 barrels of gasoline per day.” Unless Gibson is totally wrong on the numbers, I have to agree, those small sales to other countries could not impact our pump price.
Who are the oil producing giants? The United States is the 3rd largest oil producing country in the world and the #1 consumer. Saudi Arabia is #1 in production and Russia is 2nd…surprised?
42% of all our imported oil comes from OPEC countries. That’s way too much and worse, it means we are exporting $180 billion a year to countries that hate the US and/or actively fund terrorism. (That’s an uncomfortable fact) Fully 15% of our oil imports come from Persian Gulf Countries.
The top five nations selling to us are, Canada (21%), Mexico (11%), Saudi Arabia (9%), Nigeria (9%) and Venezuela (8%).
Supply and demand. The United States has ample gasoline and oil supply for this winter and you might think this would lower the pump price, and normally it would. However, there are too many oil speculators in the commodity market. Also factor in new consumers around the world, and this has forced up the price at our pumps because we’re now in the global market. We can’t do much about the new consumers, but we can do something about the speculators. Speculation in oil works just like speculators in any commodity…They (speculators) tie up a large amount of oil in oil contracts. Then they hold it off the market while they wait for the price to go up. They make a nice profit if oil moves up and they lose if oil prices move down, but it rarely does. The more you can take off the market – the more likely you will impact supply and demand and force prices higher. This part needs to looked at, because we might need some regulatory oversight to halt monopolistic practices. Other than that, there’s really no quick fix for pump prices, except for us to drive less and conserve more. That will push down the pump price, and we’re already starting to do that. When gasoline goes over $4 a gallon most of us modify our driving habits because we have a budget. There’s a bit of lag time, but eventually our frugality will have an impact.
We’ve failed to deal with the problem until its acute.. We (consumers) are up against decades of what I call “deferred maintenance” to the oil production system here (i.e. drilling and refineries). The oil industry is highly regulated and it takes a long time and lots of red tape to develop oil fields, pipe lines and even longer to build a refinery….and it all costs big bucks. There’s also the small problem of finding a good location to build a refinery. How about building a big refinery one mile North of Chico off Hwy 99? NO?!!! See, that’s a problem, almost every time it comes down to a case of, “Not in my backyard” and that results in more costly delays.
Texas is becoming [the] place for refining, but having the majority of our refining done in one concentrated location is not real smart when it comes to national security, nor is it even that economical. Ideally, you want to refine as close as possible to where the oil comes out of the ground. If you have to ship it 2000 miles this is a costly logistical nightmare and fraught with environmental concerns and obstacles.
Alaska is essentially still an untapped source, so is the new Bakken field in North Dakota. Its barely starting to yield oil and our off shore drilling is about 95% under utilized. So its not like we don’t have the oil in the ground – we just have to get at it and this is something the Obama Administration has been resisting, as well as the Democrats in Congress for too many years. We’re way behind in drilling and creating new refineries, so don’t expect pump prices to come down anytime soon.
The answer to our nation’s energy woes right now is to increase our domestic supply and for this we need to drill and refine more…”drill baby drill” isn’t enough. We need higher capacity refineries too.
The longer range view is more complex, it involves developing alternative fuels, improving our vehicle mileage and other methods of mass transportation.
Even though our Greenies think we can rely on solar, wind and alternative fuels, we can’t. At best they produce only a few percent of our energy needs. It’s just a matter of science and to be blunt the technology is not here yet…period. Sure, it looks promising and in another 20 or 30 years it might work. Can you wait that long?
Another possible factor to consider: Stagflation.
The value of the dollar may be decreasing relative to the value of oil.
Maybe I really am a socialist at heart because it seems to me that any oil on public land should be owned by the public and not traded on the stock market. If we own the oil we should keep it here and sell it to ourselves.
On ORileys Talking Point last night ORiley addressed the oil crises and stated a possible solution similar to what Palin did in Alaska. The oil under US soil belongs to us the people, and just like Palin did in Alaska the profits should be coming to us. Palin, after years of the oil companies refusing to honor their contracts to drill for oil, negotiated a deal that benefited both the oil companies and the people of Alaska.
The dialog begins at about 1:42.
http://www.foxnews.com/on-air/oreilly/index.html
But your focus is all on getting more … not making do with less. You will probably have to make that adjustment, whether you want to or not.
Now the light is coming back, I have resolved to replace the bike that was stolen from the BART station a year ago. Missed out on a 70s vintage Schwinn touring bike last weekend … but I’ll get one yet! And this time, I’m using the bike locker.
Thanks for contributing Mike. Yes, the old dollar doesn’t buy what it used too. All that bailout borrowing and overspending by Congress and Obama have devalued the dollar.
Stagflation hasn’t hit yet, but its a real possibility. That would be the worst of all possible scenarios.
Princess – we already do keep most of our oil, only a tiny pittance goes outside the country.
Thanks to high overhead (red tape) it costs twice as much to recover our oil as it does in the Gulf states like Oman, UAE, etc. and that is also impacting our home price. “”The US only exports about 19,000 barrels of crude oil per day, every drop of it to Canada, as exports of convenience – from a US oil field to a nearby Canadian refinery rather than a distant – or fully utilized – US one. We also export over 1 million barrels per day of refined products.
Large portions of this exported material include things like petroleum coke, a residual refinery product for which there is little market in the US so it is sold to Mexico and elsewhere as industrial fuel.”
Libby, our focus isn’t only on getting more. “… there’s really no quick fix for pump prices, except for us to drive less and conserve more.” Then I went on to say the long range solution must come from technology that includes alternative fuels, and improved mass transit.
Good luck finding a nice bike – I like my crossover (cost $200), more comfort than a mt. bike, faster than a cruiser.
Thoughts are swirling so I’m just going to start spitting them out.
The president and democrats have caused and are causing this problem on purpose.
Drilling and refining would create more supply and that would help to keep the price stable and lower.
If higher demand by emerging economies and the problems in the ME are the sole cause of higher gas prices wouldn’t they be high most of the time? (I heard a few days ago that Cina’s economy is flagging)
The enviro’s have blocked new refineries, as Jack said, for at least thirty years. Obama has blocked production everywhere. We shouldn’t be surprised; he said that he thought we should be paying higher gas prices like the Europeans when he was running for president.
Obama has accepted credit for the boom in North Dakota but as it turns out that boom is not under his control. (He would stop it if he could) It is all happening on private land, not federal land, and that is the only reason there is a boom in North Dakota. (Much of that is natural gas not crude, unfortunately).
The notion that oil is bad for the environment is overstated and based on trick science. It is lunatic to stifle the production of oil in this country on unfounded junk science and as a means of supporting untested alternative sources. The economy cannot come back unless we have inexpensive energy for production. That means an 8% jobless rate as the “new norm” which this president has also said we might have to “accept”!
The president is pushing an entitlement society. He may be too stupid to realize that an entitlement society is EXPENSIVE and requires a strong economy to generate revenue. Oppressing the production of oil and gas in this country for our own use and increasing exports are part of this administrations stupid policy.
http://www.alaskadispatch.com/article/would-reducing-us-fuel-exports-stop-gas-prices-spiking
The stalled economy (less demand) is adding to the to the problem!!!! And that is just fine with this administration.
The spin is that this is not the Obama problem. I just do not buy it. Obama’s policies have blunted opportunity, production, and job growth. American demand is way down. Obama’s goal is to kill the oil and coal industries in the US and he’s right on target to meet his goal. He just needs a few more years to finish the job.
America cannot afford four more years of stupid!
“Yes, despite our role as the worlds largest importer of oil and refined products, the U.S. also exports fossil fuels. As of March, the latest data available, U.S. oil refiners were exporting more than 1.8 million barrels a day of crude oil, gasoline, diesel, jet fuel and other refined products. The top five destinations for U.S. fuel were Mexico, Canada, the Netherlands, Chile and Singapore.
The export of crude oil and refined fuels doesnt prove anything about pump prices. What it proves is that crude oil and gasoline are global commodities. They are produced in dozens of countries around the world and consumed pretty much everywhere.
Now, remember, this is just an increase in refined products for export. The U.S. is still a colossal net importer of crude oil, in part because overall U.S. oil production has sharply plunged from its peak back in the 1960s, even after the recent (and comparatively small) surge in shale oil production in North Dakota and elsewhere. But our refineries are now doing big business abroad, and its one reason why overall exports have been ticking upward lately. And this hasnt happened in decades: The last time the U.S. was a net exporter of finished gasoline was way back in 1959.
So why is this happening? First, North American oil production gains have reduced the countrys reliance on imported oil not just products, but crude as well as more oil came from Canadian and U.S. sources. Second, economic growth in Central and South America that outpaces that of the United States is leading to quicker fuel consumption growth in these markets, which is pulling additional volumes south of the border. Third, geographic proximity and highly efficient refining capacity in the Gulf of Mexico means that growing oil streams, from Canadian heavy to U.S. unconventional, are being sent to the Gulf, from which refined products are then sent outward. Fourth, U.S. law mandating the use of ethanol as a gasoline additive has reduced domestic demand for conventional gasoline and boosted supply.
Id also add that Americans have been driving less since the 2008 oil shock and financial crisis (and, according to data from the University of Michigans Michael Sivak, buying increasingly fuel-efficient cars), which has kept domestic demand for gasoline down.”
Reminds me of a Letter to the editor from a dozen years ago…..
Gore driving up oil prices
Chico Enterprise-Record (Chico, CA) – Sunday, September 24, 2000
Everybody wishes that we had a raw material and energy source with zero cost and whose use came with zero consequences to the environment to replace all of our current petroleum needs. But we do not currently have such a commodity. Today, and for the foreseeable future we heavily depend upon oil.
So why does Al Gore work so hard to portray oil companies and all their employees as pure evil?
By making it increasingly costly and difficult for oil companies to discover, refine and transport that commodity that we all depend upon so much, we drive the prices upward. That sends the price of gas, plastics, fertilizers, chemicals and freight costs up. Then these items contribute heavily to the cost of countless other products and services as well.
Cut off your nose to spite your face: As we discourage oil companies in the United States, we add significant costs to our daily lives, send jobs and billions of dollars per year to foreign countries, and we dramatically increase our dependence upon foreign oil. That dependence is too high for comfort. OPEC and Mideast countries already have us by the scruff of neck.
Yes, Gore has a great plan. Let’s work to raise oil prices some more.
– Mark Sorensen , Chico
Jack those rising sales in fuel efficient cars must be very new…and tracking nicely with Obamas ideal (higher gas prices):
http://www.examiner.com/car-news-views-and-reviews-in-national/car-views-why-aren-t-people-buying-more-fuel-efficient-vehicles-updated
http://gas2.org/2011/04/05/americans-still-not-buying-fuel-efficient-cars/
http://www.sacbee.com/2012/02/22/4282658/small-and-fuel-efficient-cars.html
The more I hear about the concept of US citizens also benefiting from the proceeds of oil taken from federal land the more I like it. ORiley and Lou Dobbs talked about this topic again last night. California could sure use the revenue generated to help our budget deficit from state owned oil producing land.
If Romneycare can be credited as being the blueprint for Obamacare then what Alaska set up can also be used to develop a profit sharing plan for all of us. If states have oil companies extracting oil from state owed land a percentage of the oil profits should also be going back to the states and the people. (Dont know if this is being done or not, just saying if its not it should be.)
http://seattletimes.nwsource.com/html/localnews/2008103325_alaskatax07.html
While many other states are confronting big budget deficits because of the troubled economy, Alaska officials are in the enviable position of exploring new ways to spend the state’s multibillion-dollar budget surplus.
Some of that new cash will end up in the wallets of Alaska’s residents.
Palin’s administration last week gained legislative approval for a special $1,200 payment to every Alaskan to help cope with gas prices, which are among the highest in the country.
That check will come on top of the annual dividend of about $2,000 that each resident could receive this year from an oil-wealth savings account.
Alaska
A wealthy state
Most of Alaska’s oil production comes from land owned by the state and leased to the oil companies that look for and extract the crude. But some of the most significant undeveloped resources are in areas owned by the federal government, such as the Alaska National Wildlife Refuge and federal waters in the outer continental shelf. Revenue from oil production there would go mostly to the U.S. Treasury, but the state could claim a small part of it, according to state Department of Revenue officials.
Alaska’s oil windfall by the numbers:
$6 billion
Estimated revenue collected by state of Alaska from new tax on oil profits this fiscal year.
$10 billion
Estimated total oil revenue collected by state this year (old plus new oil taxes).
$1,200
Special payment to each Alaskan resident this year from new oil tax.
$2,000
Estimated annual dividend each Alaskan will receive this year from oil-wealth savings account, not counting the new oil tax.
How the windfall tax works
The tax is imposed on the net profit earned on each barrel of oil pumped from state lands, after deducting costs for production and transportation.
The tax is set at its highest rate in Prudhoe Bay, where the state takes 25 percent of the net profit of a barrel when its price is at or below $52.
The percentage then escalates as oil prices rise over that benchmark.
Reported on Yahoo News five refineries recently shut down resulting in adding to the rise of gas prices. Obama has refused to follow the judges order to lift his ban on the gulf coast oil rigs and other oil producing rigs on federal land resulting in higher gas prices and raising unemployment rates.
Oil and gas consumption is down in the US because of high unemployment and a mild winter in most states creating a surplus. But prices are going higher every day because oil companies are shipping OUR unused oil overseas jacking the prices up for us instead of letting the surplus drive the prices down.
If the oil was taken from federal and/or state land we should be benefiting from it and not paying more so other countries can instead.
IF ITS OUR LAND ITS OUR OIL, and we should all be jumping on the ORiley bandwagon to have new contracts with the oil companies written to reflect this change.
How can anyone watch this video and not realize we have to get this guy out of the White House?
http://www.youtube.com/watch_popup?v=qKdScVerrBU&vg=medium
Channeling industry propaganda?
“Alaska is essentially an untapped source.”
Utter nonsense.
Oil extraction in Alaska peaked in 1988 at over 2 million barrels per day (BPD) and has steadily declined since. It’s now less than 600 thousand BPD. In 2010, the USGS downgraded its estimate of the recoverable oil in the National Petroleum Reserve (ANWR) on the North Slope by 90%, to less than 900 million barrels.
Yes, there is a lot of oil still under Alaska and its waters, as a whole, but we’ve tapped most of the easy, cheap sources, and will have to pay through the nose for most of the rest. Also, much of it is in environmentally sensitive areas.
“Off-shore drilling is about 95% underutilized.”
Where on earth did you get this from? Off-shore production peaked in 2003, and it wasn’t because of environmental restrictions. It’s because, once again, except for a few sensitive areas, they’ve already exploited the cheap, easy fields. Why do you think the oil industry is bothering with expensive, risky deep water drilling?
Also, you’ve ignored the huge security and environmental costs associated with oil, few of which are borne by the industry. Do you think we would have invaded Iraq if they didn’t have so much oil, and that country wasn’t located in the most oil-rich region of the entire world? How much do you think it will cost this country when New York (much of it only 1 1/2 ft above sea level), Baltimore, Houston and other major cities become vulnerable to storm surges or even inundated?