KEN'S KORNER -MAY 2008
WHY FUEL PRICES ARE SO HIGH
BY AUTHOR, EDUCATOR & DRIVER KEN SKAGGS
With all of the talk lately about trucker strikes and protests, I thought we would be best served if we knew exactly why fuel prices are so high. This way, we can all be of like-mind for the reasons why we are protesting and the results we hope to achieve. It’s funny to listen to all of the conversations between truckers about whose fault it is, who can fix it, why we should protest or not, what the government can or can’t do, etc. It seems that there are a lot of opinions out there.
There have been some minor protests already, and some other truckers are trying to organize a huge industry-wide shutdown. But can that really do much about the high prices? Can the federal government realistically lower the price all that much? Shouldn’t our protests be demanding that they let the oil companies drill?
As much as we all agree on the fact that fuel prices are too high, everyone’s reasons for cause and cure are as different as the people themselves. Whenever drivers argue about fuel prices, it usually turns political. Some drivers blame everything on President Bush (and I mean everything - from fuel prices to why they can’t find their shoes). Others blame the Saudis or OPEC, who they think sit around in a dark room somewhere in the Middle-East with Dick Cheney controlling everything to do with oil. Others, still, blame the environmentalists who won’t let us drill in places like the Arctic National Wildlife Refuge (ANWR), Florida, or the Gulf of Mexico. Some blame it on investors who “speculate” on oil futures, but even they agree that we are experiencing a bubble right now. But, the fact is, just as any product in any business, it’s all about supply and demand.
First, let’s talk about supply. According to government estimates, less than half the world’s supply of crude oil will be used by 2025. But, according to some oil companies, we really don’t know how much more there is that hasn’t been discovered yet. So, we can safely say that there really is no shortage of supply (especially if we can find more).
Now let’s talk about imports (demand). Whenever you hear someone say how many barrels of oil we import from this country or that, keep in mind this fact - 60% of our oil is imported. That means 40% of it is domestic (which probably partially explains why Texas is having robust times right now while other states like Ohio are struggling with their economies). According to the Department of Energy (DOE), we import 17.5% from Canada, 11.9% from Saudi Arabia, 11.8% from Mexico, 11.2% from Venezuela and 9.1% from Nigeria. Two of the top three countries we buy from are our neighbors, Canada and Mexico. So, as you can see, the Saudi’s do not control the oil industry here as much as some people want to believe.
Why does diesel cost more than regular gasoline? Historically, diesel always used to be below or at the cost of regular gas. Back in September of 2004, diesel passed gas (so to speak), and has remained more expensive than gasoline since then. The DOE gives three reasons for it: 1) The worldwide demand has gone up, especially in Europe, China, India and the United States; 2) The transition to lower-sulfur fuels is affecting production and distribution costs (new regulations were enacted in 2004 and then stricter regulations in 2007); and 3) The Federal Excise Tax for fuel went up six cents per gallon, to a total of 24.4 cents per gallon.
Looking at the mere fact that the federal government makes 24.4 cents per gallon, the only real power they have over the price of fuel is to drop that tax. So, they could conceivably lower the price by 24.4 cents per gallon if they cut that tax (which is something presidential candidate John McCain recently said he might do if elected). But, I think we need a little more than that taken off the price of fuel to really give the American citizens (and especially truck drivers) the break they need to survive. The bigger problem is obviously the low-sulfur requirements. They don’t tell us how much that really costs per gallon, but I smell a rat.
Are the oil companies raping us? We hear it all over the news lately - many oil companies are posting record profits. But how much of that can really be passed along to the consumer if they so desired? Every source I checked shows that the oil companies make between .08 and .09 cents per gallon. So yes, they make billions of dollars per year, but only because they sold tens of billions of gallons of fuel. Looking at just this fact, you’d have to conclude that even if they gave us every penny of their profit, we’d only save about eight or nine cents per gallon. Considering this fact alone, I find it quite shocking that the government makes three times as much profit as the actual people who make the product. And they (the government) have the nerve to say that the oil companies are making too much money.
Then there are state taxes which, on average, are generally just a few cents per gallon. So all together, if you add up the state tax, the federal tax and the oil company profits, the total is only about .40 cents per gallon. So, where does the other $3.50-plus that we are paying per gallon go to? It goes toward research, refining and distribution. These low sulfur requirements are a huge burden on all of us. Plus, the government won’t let the oil companies drill in places where they are certain huge oil reserves lie, and that forces these oil companies to continually research unknown areas where they can drill. Apparently, our government decided that cleaner burning fuel with lower emissions and pristine wildlife areas are more important than the cost of fuel - but shouldn’t a line be drawn at some point.
So, what’s the solution? Some “simple” solutions might be for the government to drop all of the low sulfur requirements and then let the oil companies start drilling more (tell the environmentalists to take a hike). But we all know that will never happen because environmentalists have so much influence in this country. But that’s what I would suggest if I was President. But what do I know? I’m just a truck driver.