Gasoline is something that most of us use everyday, and monitor the average price of with ease. To idiot proof this posting I am going to list a few FACTS that show why gas is cheap for all the trouble that goes into putting it into your gas tank
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Ø The dollar is weak
Ø Supply and Demand
Ø Law of Diminishing Returns
Ø Refining and Distribution
The Weak Dollar: The price of a barrel of crude oil is around $100, which is near a record high. This is still cheap to purchase because the value of a dollar is near a record low. Governments love to buy things: social security, Medicare, Medicade, wars etc. As a result, our government operates in a deficit every single year. They can do 3 things to relive this
1. Raise Taxes
2. Lower Benefits
3. Print Money.
Because the government controls the money supply and is afraid to do the 1st two options, it just prints money to settle its obligations. All the efforts to hold off the recession, the tax ‘rebate’ and the lowering of interest rates, only have the effect to make the dollar less valuable. The ‘cost’ of crude has only increased marginally; it is the value of the dollar that has fallen rapidly. The main reason for such ‘expensive’ gas is that our government is devaluing the dollar in an attempt to pay off its huge entitlement obligations and cut taxes at the same time.
Supply and Demand: A pretty simple concept, the cost of something is directly tied to the amount in existence, and the amount that is required. The supply of available fuel in the world will never be completely expended. Although the supply will probably remain constant for many more years, it’s the demand that has steadily increased. There are one billion Chinese and one billion Indians that are changing from the infamous third world countries to developing nations. When a nation is growing, its economy consumes more resources and produces more products.
The increasing demand is putting upward price pressure on the cost of fuel. This does increase the price, but only slowly. This is not an “oil shock” like OPEC getting feisty, or serious problems with the pumping and distribution network like hurricane Katrina in 2005. However, prices will continue to increase due to a steady although limited supply, and increasing demand.
Law of Diminishing Returns: A man goes to pick fruit from his apple tree, he picks the fruit right at eye level, then he stoops down to get the lower fruit. After that he goes to his shed to get a ladder to get the higher fruit. When all the fruit from the tree is gone he has to move to other trees, or plant more of them. This is exactly what is happening with the world’s supply of crude oil. All the oil in Ohio and Pennsylvania was used up during the Industrial Revolution. In Alaska and Texas the yield is slowly decreasing. To find crude one must go to less hospitable locations and pull it from increasingly deeper wells. To find the good quality crude costs more money, effort, and resources, these of course will be reflected in the price of the oil that is sold to the consumer.
Refining and Distribution: It would be funny to watch someone haul oil out of the ground and move it to their driveway, and then put it in their car. The car of course would not start. Oil companies have one of the most expensive and complicated supply chains in existence. Exxon builds expensive rigs in god forsaken places to pull it out of the ground, pumps it into the biggest and most expensive ships ever made. Takes it halfway around the world to be refined in a crazy difficult and complicated process, the proceeds to ship it to your local gas station. This is all done to a product that is dangerous, poisonous, and corrosive.
Lastly it is not the oil companies’ fault that they make a profit. We worship capitalism and profit. If you have a problem with how much money they are making, buy their stock and make money right along with them. Odds are you already own some oil company through your job’s IRA. They don’t participate in price fixing, and are not a monopoly. If either of these were true the SEC would have come after them. The oil companies do a very hard job that most countries can’t even do, a job that they are fairly rewarded for.
