Instead of listening to talking heads or talk show callers to learn about gasoline prices I decided to just sit down for ten minutes and do a little math. You know...the kind of math we learned in elementary school?
2004 average cost of a barrel of crude oil: $37
2004 average cost of a gallon of gasoline at the pump: $1.85
Cost of crude oil as a percentage of the total: 47%
This means that the crude oil cost came to .87 per gallon of gasoline
2005 average cost of a barrel of crude oil (last 6 months): $65
2005 average cost of a gallon gasoline at the pump: $2.50 - $3.00
Cost of crude oil as a percentage of the total: (here is where the math comes in)
The cost of crude increased by $28
$28 is an increase of 76% over 2004
This means that the cost of crude alone added .66 to the cost of a gallon of gasoline. Therefore:
This one factor alone would have raised the cost per gallon of gasoline to $2.55 without factoring in any resulting increase in taxes (which, at an average of 23% of cost per gallon would have risen from .42 to .58, an increase in .16), refining costs (there was a hurricane, remember?) and transportation costs (those delivery trucks had to buy diesel at higher prices, too).
My guess is that with all these factors weighed in that the average price of a gallon of gasoline in 2005 ought to have been somewhere around $2.75 or so.
As it turns out that was just about what it was.
Article comments
— go to most recent comments1 - Chris Beaumont
Nicely written. I still complain about gas, but thanks for adding some perspective. very nice.
2 - Phillip Winn
All of this math is interesting, though it oversimplifies dramatically by relying on "annual averages."
Here's some more math: Exxon/Mobil made 10.7 billion dollars in profit last quarter.
That's profit, not gross revenue, and that's billions.
Is it evil to make so much money? It depend on how you make it. The price of gasoline unfortunately affects the price of nearly everything else, since most things have to be transported hither, thither, and yon. Is $10.7 billion "profiteering?" Or a reasonable profit on a company that does a heck of a lot of business?
How much of that profit is on gasoline? Directly or indirectly?
I'm not simple-minded, and if the price of gas is reasonable, then it's reasonable. But it's hard to reconcile $10.7 billion with "cost of business."
3 - Pat Fish
Phil,
I must add that the federal government (forgetting the states for a minute) takes in MORE cents per gallon than the oil companies.
So when the pious congress critters get on their thrones and throw crap at a legitimate American business, well all they have to do is lower the excise tax if they REALLY cared about us Americans.
It's all a political stunt. Market forces control the price of gasoline and dear Lord I hope the congress critters keep their dirty hands off of it, even if, yes, I have to pay more at the pump. Get the government to be involved in deciding how much profit a business can make and you'll have a corrupt mess.
Witness the outrageous post office.
4 - Chris Beaumont
I'm sorry, but I laughed when I read "congress critters"!
5 - RJ Elliott
If they got rid of the federal, state, and local taxes on gasoline, the price per gallon would be much less expensive.
Of course, government revenues would decline. But they could be made up in other ways, or maybe spending could be cut...
6 - Baronius
Nice article.
Hawaii's prices are unlike any other state's. Which again makes sense, because of the cost of shipping. (Except for macadamia nuts. They must be really cheap in Hawaii.) Even gas taxes make sense, in theory. The revenue is supposed to go to transportation-related government expenses. So the road user pays for road repairs.
Hawaii has an interstate. That still cracks me up.
7 - JP
But what would the crude oil cost if there weren't a war in Iraq or, potentially, Iran?
8 - Dave Nalle
I think I missed this excellent article the first time around.
If they got rid of the federal, state, and local taxes on gasoline, the price per gallon would be much less expensive.
Of course, government revenues would decline. But they could be made up in other ways, or maybe spending could be cut...
Or we could raise the hell out of gas taxes and thereby make alternative fuel vehicles competitive in the marketplace and maybe cut taxes in some other areas.
Dave
9 - Nancy
Better yet, we could just import the technology from Brazil & start making alternative fuel cars & the cooking oil/grass fuels that feed them. Won't happen, of course: too many of the Ruling Class in this administration & their corporate buddies are too heavily invested in Big Oil, so Americans will be made to continue to subsidize the oil industry even as Fearless Leader prates about being addicted to oil. I mean, get real: Brazil has the means to produce alternative fuel & cars to use it, but WE don't?! Crap.
And thanx, Bird: I don't trust figures issued by either the industry or government, so it's nice to hear the basics from someone I consider as having no axe to grind. Yeah, Hawaii is a definite trip as far as prices of anything goes, even Kona coffee! I almost had hysterics the first time I had to go buy a gallon of milk. It tempted me to buy me a goat or something. What island are you on?
10 - Molalla Max
Good stuff. But if fuel tax was lowered or eliminated, the price would not be affected proportionatly. The demand would increace at the lower price and the oil companies would enjoy higher profits.
11 - Steve
No one has mentioned drilling more of our own oil, and building more refineries to, oh I don't know, increase supply. A little econ 101.
12 - Gordon
Feel free to correct me if I'm wrong, but oil is used for other items other than gas, no?
Such as....hmmm, well: PLASTICS!
From WiseGeek.com:
"Common monomers used in the production of plastics, such as vinyl acetate, styrene, butadiene and vinyl chloride, are extracted from crude oil or natural gas...."
Web link:
My experience with this IS NOT in chemistry: it's in customer service in party stores. See, when I started working at a party store/gas station back in 1992, plastic 20 ounce bottles in my neck of the woods was just replacing glass bottles for Coke and Pepsi. Bottle water really wasn't the rage yet.
Now fourteen long years later, just about every product's container is made out of plastic. I can go into the cooler at my work place and find that, no fooling, ninety-nine percent of the prodcuts in there are in plastic. Take that, multiple that by the demand of the public for things in plastic bottles like water, like Coke, like Mountain Dew, and no matter the bottle return law the need for platics to make more containers is high.
Ergo, the need for crude oil to make plastic containers is high.
13 - BillZ28
One item that no one has mentioned yet is how much ExxonMobil is spending on drilling for new wells this year.
Those who are accountants will understand that "Net Profit" only equates to how much profit ExxonMobil made this year (actually it was around $38 Billion), the earlier number was only for one quarter.
Anyway, the point is that "Net Profit" does not take into account most of the current "Capital Spending". My guess is that ExxonMobil will use the majority of their "Net Profit" to drill and develope additional Oil Fields around the world.
Many of you may remember Bernie Ebbers of WorldComm fame - Mr. Ebbers was convicted of moving monthly spending items into their "Capital Spending" items accounts, so that WorldCom could report higher "Net Profits".
Looks like somedays you just can't win!!
14 - closedspace
Im confused. In order to calculate 'percentage of cost' we would have to know how much crude oil it takes to produce a gallon of gasoline. I have yet to hear this author or any other talking head discuss this 'most important' piece of information. Does a gallon of crude produce a gallon of gasoline or does it produce 100 gallons of gasoline. If it is the later, than the price of doesnt effect the price at the pumps that much. This entire conversation is meaningless unless we have this important piece of the puzzle.
15 - Tony B
Attention #14 closedspace
Maybe the following site will answer your question. At least it sounded reasonable to me.
16 - 64Dodger
One barrel of crude oil makes about 19½ gallons of gasoline, 9 gallons of fuel oil, 4 gallons of jet fuel, and 11 gallons of other products, including lubricants, kerosene, asphalt, and petrochemical feedstocks to make plastics
17 - 64dodger
http://www.gravmag.com/oil.html
All the info on oil cost and prices you would want to know.
18 - BG
Nancy#9
I appreciate the thought of switching to alternative fuels. However, oil is basically the liquid form of millions of years of sunshine. Switching to cooking oil/grass fuels would take so much land and get much less raw energy per acre. Unfortunately, I've even heard some countries are cutting down rain forests to grow oils just to supply EU quotas for "alternative fuels"!
So it's a nice thought, but it's not quite that simple yet and it's not completely a "Ruling Class" conspiracy.
19 - Andy Marsh
EXXON - 36 billion in profits in 2005...
CEO of EXXON - $400 million godlen parachute for retirement and a million dollar a year consulting gig to boot...that's why gas prices are so high.
20 - Nancy
When they're also busy gifting their top retiring executives with exorbitant, obscenely outrageous, over-the-top retirement & bonuses at the same time they're making obscenely outrageous, over-the-top profits (and no matter by what name, a profit is a profit), I don't buy any sort of double-talk 'explanation' excusing current prices. If they can afford those retirement packages, & are making those kinds of profits, they can jolly well cut consumers a break.
21 - Andy Marsh
And I hate to tell you, but I live in Virginia Beach and gas is $2.78 here...so, a $0.09 difference ain't that much. I was in Hono in Feb and gas was way more than it was here. Now they seem to be catching up. Did they lower the transportation costs of gas for you or raise them for us?
22 - wkt1969
Americans use hundreds of millions of gallons of gas per day. So if they didn't give this guy a bonus, that would what drop gas prices for a day or two at the most? You can question the number but not how it impacts gas prices.
23 - Nancy
Yeah, but it's not just this one guy; these execs are pigging out across the board, stiffing the public & the small stockholders while they slop at the trough. Current stock voting laws only allow the major stockholders (all or most of whom tend to be fellow hogs on The Board) to have any say in compensation decisions, etc. If these outsized retirement & bonus packages do anything, hopefully it will move congress - the biggest pack of sloppees on record - to amend the rules so the rank & file stockholders can have a voice in refusing to allow this travesty of mismanagement & misrule by execs.
24 - Bobby Bowden
I wish OPEC would go broke and all those Arabs would starve. Sell it cheaper a-holes!!!!
25 - KLH
We could always drill for our own oil off our own coasts like Castro and Mexico are, but that would be to damaging to the enviroment. Everyone knows that socialist and communist nations don't damage the environment. It's only us filthy evil capitalists making 400 million that destroy the environment.
Price of gas sucks, but until the supply catches up with demand, expect the price to continue to suck. Alternative fuels are not an answer since it would require everyone to buy new cars. Trying to go lean on energy use sounds great until they start proposing we all cook our food over a burning pile of our own dung.
We need real answers to real problems.