By Morf Morford
Tacoma Daily Index
As I mentioned in an article a few months ago (www.tacomadailyindex.com/blog/high-gas-prices-and-inflation/2453259/), we Americans love to complain about gas prices.
We love to blame presidents, political parties even abstract philosophies or greedy corporations or anyone else we can think of.
Since most of us rely on fossil fuel dependent combustion engines for work or play, when gas prices go up, they hit our daily and weekly budgets even harder and more immediately than rising food prices.
Some of us could (and many of us did) buy a Costco-sized crate of almost anything a month or more ago that, to a degree, cushioned the pain of price increases that have been more recent.
And our cases of food stuffs allows us a margin of time to buy just a few things at a single time.
Not so with gas.
As we all know all too well, gas prices can (and often do) go up by the day. But why? And who’s to blame?
The short answer is that it’s not any given president, political party or even energy policy.
The long answer is, ahem, complicated.
If you are an energy policy nerd or just want to see the fine print on why gas costs what it does, the Department of Energy has a useful (and easy to understand) chart that breaks down the major expenses involved in turning crude oil in the ground into the refined gas you can put in your car.
The cost of crude
The largest share, comprising a bit more than half the price we pay, is the price of crude oil – the raw material from which gas is refined.
Basic crude oil trades for about $110 per barrel. Back in 2021, it was only about $65 per barrel.
A year before that, it was even lower.
Thanks to the pandemic, demand dropped dramatically.
Demand for oil has come back with a vengeance, but global oil output has been slower to recover from the cuts that OPEC and many energy companies implemented over the previous couple years.
Taxes
The next biggest factor determining gas prices, according to the Department of Energy, is gas taxes – specifically, the state, local and federal taxes levied on fuel.
The federal government and virtually every state imposes its own fuel tax. But they have barely changed recently, and can’t be blamed for the recent run-up in gas prices.
As of January 1, 2022, total state taxes and fees on gasoline averaged 31.02 cents per gallon. The 18.4-cent-per-gallon federal tax on gas hasn’t been increased in about three decades. And some states have recently cut or suspended their own gas taxes to give the average driver a bit of relief at the gas pumps.
Like most seemingly simple solutions, these state tax reductions have a near zero affect on the average price of gas as it hits new records.
The three other factors controlling gas prices are a mix of related costs: refining crude into gasoline and other fuels, transporting it to stations by pipeline and truck, and marketing it.
For the most part, marketing isn’t that effective; most of us have established a habit of buying gas at our preferred places and are unlikely to change.
The cost of refining
As you might guess, crude oil is, ahem, crude and not terribly useful in its natural state. And, as you have probably experienced, different states have different requirements so refining costs and profits vary seasonally and by region in the United States.
Some “crudes” are more crude than others (there is even a “sweet” and “sour” crude) and refining different grades requires different processes – or even equipment – and, of course, varying costs.
What makes a particular crude sweet or sour is the amount of sulfur it contains. Sweet crude has very low levels of sulfur – under 1%. Sour crude has as much as 1-2% of sulfur.
Heavy & light oil
Heavy oil is more dense, evaporates slowly and contains material that will be used to make heavy products like asphalt.
Light oil requires less processing and produces a greater percentage of gasoline and diesel than heavy oil.
Additives
Some additives are required for summer driving, some for winter driving. These can disrupt processing and transportation of fuel – which will certainly be reflected in prices. And some states have their own rules requiring or prohibiting certain additives.
Transporting oil
As a fuel, oil is relatively easy to transport. At least in small amounts. Most passenger vehicles hold between ten and twenty gallons.
Each gallon of gas weighs about 6 pounds.
Multiply that by the several thousand-gallon capacity of trucks or the many thousand gallon capacity of ships or a pipeline and you get a sense of how complicated (and dangerous) transporting gas might be.
The cost of doing business by individual gasoline retailers can vary greatly depending on where a gasoline station is located. As with every brick and mortar business, these costs include wages and salaries, benefits, equipment, lease or rent payments, insurance, overhead, and state and local fees.
Some retail stations of different brands close to each other can have dramatically different traffic patterns, rent, and sources of supply that affect their prices.
And, if you are wondering when gas prices will go down, I have a simple answer; it won’t be soon.
And when/if gas prices do drop, you probably won’t like that either; the strongest variable when it comes to gas prices is demand. When demand falls, so will prices.
In other words, as our economy weakens, gas will be cheaper. Demand is high because the economy is strengthening.
Within reason, I think that is something we all want.
Going Electric?
Many factories, and many modes of transportation from cars to ferries to airplanes are shifting away from fossil fuels to all or hybrid electric. This move will impact fossil fuel demand slowly, but definitively.
In a few years oil (and oil prices) will probably never dominate our economy the way they have for the past several generations.
As car history nerds know, electric cars were first produced alongside the first generations of oil-fueled vehicles.
Portability of a reliable fuel source was the defining feature of which vehicles would dominate.
Obviously combustion engines were more popular and practical for most of the 20th Century.
The 21st Century will certainly be different.
