Jeff's July Inquiry - Gasoline
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Jeff Francis
Jun 24, 2008, 3:20:05 PM6/24/08
to houseo...@googlegroups.com
With the recent skyrocketing in gasoling prices and this being such a hot media topic I've noticed that nobody has brought up this up to the House, and so I thought that I would start a discussion. I would like the discussion to begin on a very basic level, and hopefully we can delve deeper as the month progresses. I have often wondered at the control the government has over gasoline even though it's production and distribution is handled by private entities. I must admit that I don't know much about the industry, which is one reason why I would like to bring this subject to the table.
Maybe if I can know the history of the oil & gasoline industry and the government's involvement in it then I can gain some insight as to why the prices are so obscenely high today. So I have a series of questions which I hope others in this group might be able to shed some insight on.
First - a. Beyond taxes and tariffs, what direct control does our government have over the oil market and American purchasing of it?
b. I'm reminded of similar taxes on products, such as cigarettes and alcohol. I'm also reminded of the tea taxation which caused upheaval in the American colonies. The taxation on gasoline is so gross that I don't understand why everyone is so content to just sit on it. But the part of the question is, why as gas so heavily taxed, and is it okay/ justified?
Second - It certainly seems to me that gas prices directly effect oil prices, but is there more to it than meets they eye?
Third - Is the oil price in perfect reflection of the market dictation, or are there other factors involved? Or in other words, is it strictly demand and supply that has decided the price of oil since there are now more big buyers in the market? If there is more to it then has the increase in oil price been an affect of decisions and actions our government has made?
Fourth - Do other countries, like China, pay as much for oil as we do?
Fifth - Decades ago gas prices jumped from about $0.2/gal to about $1.0/gal which was a huge deal. Does anyone know anything about what happened at that time? And why did gas prices 1. not go back down, and 2. plateau for several decades following until after September 2001 which were then only about 40 cents higher than before 9/11 for 3 or 4 years?
Brett Kraus
Jun 24, 2008, 5:20:41 PM6/24/08
to House of Junto
Ooooh, I was looking forward to a topic like this in the future, it is
a lot of fun. I am going to answer the questions out of order, but oh
well.
The answer to the second question on prices is simple. Oil is a
natural resource that is drilled for and pumped out of the earth.
Crude Oil while it is pumped out of the ground is unrefined and almost
wholly useless. You have to first refine it and separate some of its
components out, which can get you motor oil, regular gasoline, diesel
fuel, kerosene, coke (not the smoking kind, but the kind used to make
steel), tar, and more. So the price of oil really just increases the
input costs of gasoline, making gasoline more expensive rather than it
working the other way around.
As for question number 4, some countries pay more than we do and
others pay less.
A good list of some of the prices that existed on May 1, 2008 (from
the Associates for International Research, Inc. - AIRInc):
http://media.mcclatchydc.com/smedia/2008/05/02/17/773-20080502-GASPRICES.large.prod_affiliate.91.jpg
The data shows that Norway pays the most at $8.73/gallon, and
Venezuela pays the least at $0.12/gallon. The nations that pay the
least all make a significant profit from oil drilling industries in
their nations, and since it is a predominant industry for them, they
can force their mostly government owned companies to charge their
citizens less for oil than they do the rest of the world.
Question 5 is important and I will give it an answer in contrast to
number 3, to try and reveal my perspective on the differences in the
situations. In the 70s, the primary source of oil was Arab nations,
which while they still control the lion's share, they are responsible
for a significantly smaller portion of the supply today than in the
70s. In the 70s, the oil producing nations, under the coalition of
the organization of petroleum exporting countries (OPEC), which was
made up of Arab nations, refused to send oil to any nation that had
supported Israel. That included the United States, so the supply of
Oil available to the U.S. was reduced, and the prices shot through the
roof. To combat the price rises, the government tried to stop the
rise with price controls, which ended up hurting the economy and the
value of the dollar (yes this is all debatable, but there is good
evidence that those decisions are what did the harm), so when the oil
embargo was rescinded a year later, the dollar was much weaker and the
price could not fall because the purchasing power of the dollar had
been hurt so bad.
Today there is a difference in the reason for the pricing changes,
well two actually. Supply has been hurt a little by the Iraq war, and
we all expected costs to go up because of that, but that is not the
biggest cause of the price increases. The biggest reason for the
increases is that China now uses 6 times the amount of oil it used 10
years ago. The shift is massive, and since China has been using the
increase in oil usage to industrialize, they do not appear to be
needed less oil in the near future, so the prices are not likely to go
down any time soon without either (1) us dropping our gas tax, or (2)
us drilling for and producing more oil.
A recent congressional report issued stated that only 40% of the oil
permits that have been issued are being used (that is to explain why
they do not want to open up ANWR). We do not know the value of the
areas where the permits are not being used, but we know that there is
still untapped oil in the U.S.
So I guess what I have been saying is that Supply and Demand have done
most of the work, but our government in Iraq has reduced the supply of
oil while an exterior force has been increasing demand making prices
higher. Now OPEC does not have the same power they did in the 70s and
an attempt to hurt the U.S. in this manner now would not be as
successful, since the nations competing with them are willing to
undercut their prices to get ahead, removing most of their clout.
Also, since the U.S. is still the biggest user of oil, by refusing to
sell to us, they would be hurting their own profits, and since we are
fickle to prices, we are not overly picky about who we buy from.
Now as to what control we have over the Oil Market, we have a lot, we
can tax, and drill, and give any kind of federal funding to shale oil
research (it is all private now, and much of the land on which shale
oil is found is protected by the government), and more. The reason
for not doing this stuff is largely political. The ELF (Earth
Liberation Front), argues for raising the gas tax in order to force
research on renewable energy so that we can stop people from using
gasoline - other organizations that are significantly less extreme
agree with this as well, but state it in round-about terms. They want
to make it harder to drive and to convince people to drive less so
that our carbon footprint is reduced, and they are shrewd enough to
know that economics is a good way to accomplish that. There have been
those fighting against it, and those fighting for it, and so gas taxes
rise and fall as do the number of permits allocated to drilling based
on the political make-up of the government.
I know this is a long answer and doesn't nearly get into the details
of it, but these gas prices are probably here to stay, and there is
not much that our government can do about it.
a lot of fun. I am going to answer the questions out of order, but oh
well.
The answer to the second question on prices is simple. Oil is a
natural resource that is drilled for and pumped out of the earth.
Crude Oil while it is pumped out of the ground is unrefined and almost
wholly useless. You have to first refine it and separate some of its
components out, which can get you motor oil, regular gasoline, diesel
fuel, kerosene, coke (not the smoking kind, but the kind used to make
steel), tar, and more. So the price of oil really just increases the
input costs of gasoline, making gasoline more expensive rather than it
working the other way around.
As for question number 4, some countries pay more than we do and
others pay less.
A good list of some of the prices that existed on May 1, 2008 (from
the Associates for International Research, Inc. - AIRInc):
http://media.mcclatchydc.com/smedia/2008/05/02/17/773-20080502-GASPRICES.large.prod_affiliate.91.jpg
The data shows that Norway pays the most at $8.73/gallon, and
Venezuela pays the least at $0.12/gallon. The nations that pay the
least all make a significant profit from oil drilling industries in
their nations, and since it is a predominant industry for them, they
can force their mostly government owned companies to charge their
citizens less for oil than they do the rest of the world.
Question 5 is important and I will give it an answer in contrast to
number 3, to try and reveal my perspective on the differences in the
situations. In the 70s, the primary source of oil was Arab nations,
which while they still control the lion's share, they are responsible
for a significantly smaller portion of the supply today than in the
70s. In the 70s, the oil producing nations, under the coalition of
the organization of petroleum exporting countries (OPEC), which was
made up of Arab nations, refused to send oil to any nation that had
supported Israel. That included the United States, so the supply of
Oil available to the U.S. was reduced, and the prices shot through the
roof. To combat the price rises, the government tried to stop the
rise with price controls, which ended up hurting the economy and the
value of the dollar (yes this is all debatable, but there is good
evidence that those decisions are what did the harm), so when the oil
embargo was rescinded a year later, the dollar was much weaker and the
price could not fall because the purchasing power of the dollar had
been hurt so bad.
Today there is a difference in the reason for the pricing changes,
well two actually. Supply has been hurt a little by the Iraq war, and
we all expected costs to go up because of that, but that is not the
biggest cause of the price increases. The biggest reason for the
increases is that China now uses 6 times the amount of oil it used 10
years ago. The shift is massive, and since China has been using the
increase in oil usage to industrialize, they do not appear to be
needed less oil in the near future, so the prices are not likely to go
down any time soon without either (1) us dropping our gas tax, or (2)
us drilling for and producing more oil.
A recent congressional report issued stated that only 40% of the oil
permits that have been issued are being used (that is to explain why
they do not want to open up ANWR). We do not know the value of the
areas where the permits are not being used, but we know that there is
still untapped oil in the U.S.
So I guess what I have been saying is that Supply and Demand have done
most of the work, but our government in Iraq has reduced the supply of
oil while an exterior force has been increasing demand making prices
higher. Now OPEC does not have the same power they did in the 70s and
an attempt to hurt the U.S. in this manner now would not be as
successful, since the nations competing with them are willing to
undercut their prices to get ahead, removing most of their clout.
Also, since the U.S. is still the biggest user of oil, by refusing to
sell to us, they would be hurting their own profits, and since we are
fickle to prices, we are not overly picky about who we buy from.
Now as to what control we have over the Oil Market, we have a lot, we
can tax, and drill, and give any kind of federal funding to shale oil
research (it is all private now, and much of the land on which shale
oil is found is protected by the government), and more. The reason
for not doing this stuff is largely political. The ELF (Earth
Liberation Front), argues for raising the gas tax in order to force
research on renewable energy so that we can stop people from using
gasoline - other organizations that are significantly less extreme
agree with this as well, but state it in round-about terms. They want
to make it harder to drive and to convince people to drive less so
that our carbon footprint is reduced, and they are shrewd enough to
know that economics is a good way to accomplish that. There have been
those fighting against it, and those fighting for it, and so gas taxes
rise and fall as do the number of permits allocated to drilling based
on the political make-up of the government.
I know this is a long answer and doesn't nearly get into the details
of it, but these gas prices are probably here to stay, and there is
not much that our government can do about it.
Jeff Francis
Jun 24, 2008, 5:45:31 PM6/24/08
to houseo...@googlegroups.com
I just noticed an error of phrasing in question 2, the correction is: "...gas prices are directly effected by oil prices".
Adam Webster
Jun 25, 2008, 12:14:45 PM6/25/08
to houseo...@googlegroups.com
From what I understand, China has greater control over our gasoline
prices than a lot of other elements. I just wanted to add a bit to what
Brett is saying. OPEC hasn't raised their production levels in about a
decade. Remember when gas what 98 cents a gallon in the late 90's? That
was before India and China made their most recent Industrial push. Now,
to get more oil for their industry, China forces prices up by placing
higher bids per barrel than other countries. If China will pay the
higher prices, everyone else will too. As Brett mentioned earlier, the
only real way for us to solve this is to get our own fuel.
prices than a lot of other elements. I just wanted to add a bit to what
Brett is saying. OPEC hasn't raised their production levels in about a
decade. Remember when gas what 98 cents a gallon in the late 90's? That
was before India and China made their most recent Industrial push. Now,
to get more oil for their industry, China forces prices up by placing
higher bids per barrel than other countries. If China will pay the
higher prices, everyone else will too. As Brett mentioned earlier, the
only real way for us to solve this is to get our own fuel.
Jeff Francis wrote:
> I just noticed an error of phrasing in question 2, the correction is:
> "...gas prices /are/ directly effect/ed /by oil prices".
Scott Nesler
Jun 25, 2008, 4:37:47 PM6/25/08
to House of Junto
Jeff, I'll have to come back and analyze each of your points to
provide a more thorough response.
From what I have heard and some googling it appears that taxation on
gasoline and oil is less than other products such as liquor or
cigarettes.
http://en.wikipedia.org/wiki/Fuel_tax
http://www.taxfoundation.org/research/show/245.html
NPR's - On Point recently aired a program on High Oil prices and
speculations/hedging.
http://www.onpointradio.org/shows/2008/06/20080624_a_main.asp
provide a more thorough response.
From what I have heard and some googling it appears that taxation on
gasoline and oil is less than other products such as liquor or
cigarettes.
http://en.wikipedia.org/wiki/Fuel_tax
http://www.taxfoundation.org/research/show/245.html
NPR's - On Point recently aired a program on High Oil prices and
speculations/hedging.
http://www.onpointradio.org/shows/2008/06/20080624_a_main.asp
Jake Patterson
Jun 30, 2008, 9:14:20 PM6/30/08
to House of Junto
A part of me wants to tell the Far East to invent their own engine
with their own fuel source. Another part of me is a bit upset at
ourselves, the illustrious Americans, for sitting back and not
inventing another fuel source in all this time.
An opinion about removing the gas tax that John McCain and others have
proposed: I disagree. I think the Federal government has a lot more
to lose than we have to gain by the idea. When gas prices are this
high, what's another eighteen cents a gallon? Honestly! It's a cute
idea and it might get him some votes, but I dont' think it's worth it
in the end.
Back to question one, besides ELF and their henchmen, aren't there
government restrictions to drilling for oil in our most oil-rich
areas? I believe it is actually illegal to drill in parts of Alaska,
or at least illegal to expand the drilling we currently do.
On Jun 24, 3:20 pm, Brett Kraus <MoralEconom...@gmail.com> wrote:
> Ooooh, I was looking forward to a topic like this in the future, it is
> a lot of fun. I am going to answer the questions out of order, but oh
> well.
>
> The answer to the second question on prices is simple. Oil is a
> natural resource that is drilled for and pumped out of the earth.
> Crude Oil while it is pumped out of the ground is unrefined and almost
> wholly useless. You have to first refine it and separate some of its
> components out, which can get you motor oil, regular gasoline, diesel
> fuel, kerosene, coke (not the smoking kind, but the kind used to make
> steel), tar, and more. So the price of oil really just increases the
> input costs of gasoline, making gasoline more expensive rather than it
> working the other way around.
>
> As for question number 4, some countries pay more than we do and
> others pay less.
>
> A good list of some of the prices that existed on May 1, 2008 (from
> the Associates for International Research, Inc. - AIRInc):http://media.mcclatchydc.com/smedia/2008/05/02/17/773-20080502-GASPRI...
with their own fuel source. Another part of me is a bit upset at
ourselves, the illustrious Americans, for sitting back and not
inventing another fuel source in all this time.
An opinion about removing the gas tax that John McCain and others have
proposed: I disagree. I think the Federal government has a lot more
to lose than we have to gain by the idea. When gas prices are this
high, what's another eighteen cents a gallon? Honestly! It's a cute
idea and it might get him some votes, but I dont' think it's worth it
in the end.
Back to question one, besides ELF and their henchmen, aren't there
government restrictions to drilling for oil in our most oil-rich
areas? I believe it is actually illegal to drill in parts of Alaska,
or at least illegal to expand the drilling we currently do.
On Jun 24, 3:20 pm, Brett Kraus <MoralEconom...@gmail.com> wrote:
> Ooooh, I was looking forward to a topic like this in the future, it is
> a lot of fun. I am going to answer the questions out of order, but oh
> well.
>
> The answer to the second question on prices is simple. Oil is a
> natural resource that is drilled for and pumped out of the earth.
> Crude Oil while it is pumped out of the ground is unrefined and almost
> wholly useless. You have to first refine it and separate some of its
> components out, which can get you motor oil, regular gasoline, diesel
> fuel, kerosene, coke (not the smoking kind, but the kind used to make
> steel), tar, and more. So the price of oil really just increases the
> input costs of gasoline, making gasoline more expensive rather than it
> working the other way around.
>
> As for question number 4, some countries pay more than we do and
> others pay less.
>
> A good list of some of the prices that existed on May 1, 2008 (from
Brett Kraus
Jul 8, 2009, 2:51:01 PM7/8/09
to houseo...@googlegroups.com
Hey, I have gotten bored, so I am back to respond more to old posts I just felt like answering or responding to.
Responding to Paco's statement, beyond ELF and their henchman... He is absolutely right, they are not the only ones stopping the drilling. There are government restrictions, but a lot of push comes from the ELF, both through their illegal activism and their legal sister organizations. In essence the politics are shady, because we do not want to be painted as Earth-Killers, or Millions-of-Baby-Maimers, so we try and protect the environment.
Government leaders do this out of self-interested motives. People who really care about it pay attention. The people who don't care, don't really look until after the fact and just respond with stunned shock. ELF and other environmental extremists make their voices heard. Some have deep pocketbooks and can give support to campaigns and more in exchange for these kinds of bills (technically illegal, but fairly commonplace - groups argue that they give a person money because they agree, but often you see it is politicians with a histoy of not caring, who suddenly gets the money and becomes the number one supporter). Oil producers outside of the U.S. are also willing to support no expansion of oil and can get influence pushed from outside the U.S. to stop the drilling. Essentially, the whole thing is complicated, but the people who want oil from ANWR or want more control do not want to pay the consequences for it, generally.
Obama has recently passed a bill mandating emissions standards for a date in the future that angers a lot of people, but it is exactly the kind of bill that the eco-savvy individual was hoping for, but that also turns the stomache of the poor consumer.
Adam Webster
Jul 18, 2009, 3:23:28 AM7/18/09
to houseo...@googlegroups.com
The answer to the gas problem, for me, has always been the same. Drive
less, and it will drive prices down. Prices really go up these days
because we show we are willing to pay them. As someone with very
shallow pockets, it is one of the only and one of the most powerful
things I can do.
less, and it will drive prices down. Prices really go up these days
because we show we are willing to pay them. As someone with very
shallow pockets, it is one of the only and one of the most powerful
things I can do.
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