Last week we reported that Americans are now paying 80 cents more per gallon for gasoline—an increase of 39 percent compared to this time last year. We also discussed how one major cost element—federal and state taxes—inflates your cost at the pump. Noting the overall retail price at the pump is too high, we promised to delve into other factors and cost components in this edition.
Here is the promised brief.
First, some context:
There was a time when most everyday Americans didn’t concern themselves with how many zeros were in millions, billions and trillions of dollars. But, given the explosive expansion of government more people are now paying attention to all those zeros.
Consider the zeros in the following facts:
Last year Americans paid about $730,000,000.00 each day for gasoline. Now, it’s costing Americans more than $1,000,000,000.00 dollars in daily payment for gasoline.
Rather than squint in an effort to count the number of zeros, the more important reality is all that additional cost represents a money transfer… to government and entrenched controllers of this most precious liquid gold.
Specifically, 55 cents of every gasoline dollar you pay goes to the producers who extract crude oil out of the ground.
The remaining 45 cents of your gasoline dollar goes to those who refine the crude into gasoline; those who distribute the gas to retail stations; and, to government in the form of federal and state taxes. (See: Taxes Are Driving Up Gas Prices)
Here’s the rub:
As gas prices escalate, the individual purchasing power of every American continues to deteriorate.
What are some of the other factors causing the price rise?
One factor is the speculators swimming in the financial markets.
More speculators are jumping in every day in search of quick money.
The speculators move money in and out of oil futures.
Make no mistake. Speculators affect the cost of crude.
What is the extent?
Here’s one way to size it:
More than $150,000,000,000—there’s those zeros again – in oil futures were traded on some days earlier this year. On any given trading day, that amount represents 23 days of crude oil at current market value.
Another indicator is U. S. refinery processing of crude oil.
This year domestic refining has been averaging about 14 million barrels per day. That is down by more than 1 million barrels per day versus previous years.
While that level of refining reflects lower demand for gas – millions are jobless thus not driving to work – it also points to unused refinery capacity. The level of dormant capacity is now equal to about 3.5 million barrels per day. That’s significant. It also means the need for refinery workers is down too.
The politics domestically and internationally makes matters worse.
The OPEC oil producing countries include Algeria, Indonesia, Nigeria, Saudi Arabia, Dubai, Venezuela and Mexico. Most of those are in the Middle East and the Obama Administration, for reasons unstated, so far has not been willing to stand up to them.
At least Obama’s predecessor, George W. Bush, told OPEC “… it’s a mistake to have your biggest customers’ economies slowing down as a result of higher energy prices.”
But, instead of speaking to the sheiks Barack Obama has told the American people “The only way we are going to seriously reduce the price of gas is if we actually start investing in alternative fuels and we raise fuel standards on cars”.
Succinctly put, that is not so.
Raising fuel mileage standards will not work to lower domestic prices at the pump given worldwide oil demand levels.
And, citizens cannot afford to fund government subsidies in search of alternate fuels.
What can and must be done is to start domestic drilling now.
Government must get out of the way of those citizens willing to invest capital domestically in search of oil, to drill on U.S. land as well as offshore, and to construct new domestic refineries.
Government at all levels can jump start the turnaround by removing all taxes on gasoline sales.
To paraphrase President Obama, those two actions will bend the price curve down and make gas more affordable.
That will get America moving again.
I’m confident you know in what direction.
Richard Olivastro is president of Olivastro Communications, a professional member of the National Speakers Association, and founder of Citizens For Change (www.CFC.us). He can be reached via email: RichOlivastro@gmail.com ; telephone: 877.RichSpeaks, or www.richardolivastro.com/blog.