The US Energy Information’s website provides a plethora of facts and background surrounding US oil consumption and all of the facts in this article, unless otherwise noted.

After spending most of the summer filling up the tank at 3 dollars per gallon, there has been much shock over the recent sightings in the 2 dollars per gallon range. While for us the consumers this is welcome news, for politicians who have made high gas prices a campaign issue there is some explaining to do.
    In reality, the solution so many politicians are touting, taxing oil companies supposedly earning record profits, ignores the real causes of high gas prices. It is important, as intelligent consumers of gasoline and political rhetoric, to understand these factors and not get duped by a sound byte blaming “big oil” for all of societies problems.
    Many factors go into the price of a gallon of gas, and the largest, 55-60%, is the price of a barrel of crude oil. An unfortunate reality is that the United States gets most of its oil from the Organization of Petroleum Exporting Countries (OPEC). Cartels like this are able to control most of the supply of oil and as a result, do not have to respond to market forces when they choose how much oil to provide. Note now once they have a taste for $70 a barrell oil they are talking about cutting production when it drops to a mere $60.
    For example, the recent period of economic growth in the US and developing countries caused a huge demand for oil. By instructing their member countries to keep production and thus supply constant, this situation of demand far outweighing supply dictated the price would go through the roof. Also, instability in the Middle East caused OPEC and other producers to additionally hold back much needed, price-reducing supplies in anticipation of a World crisis.
    After oil prices, the third largest production cost is in refining the oil into gasoline and other petroleum products. Refining is done in the US, and dictates how much gasoline is able to reach gas stations, and once again, supply and demand set the price at the pump.
Another reason for high gas prices is because of the lack of new oil refineries in the US. Because of Federal regulations, it is nearly impossible to build a new refinery. Thus, in times of increased demand like the summer driving season, prices go up because there is simply not enough supply to meet consumer demand.
Natural disasters like Hurricane Katrina are prone further reduce an already inadequate refining capacity. In fact Katrina knocked out 10-15% of refining capacity and a larger portion of domestic oil production. Operating without these critical supplies and factoring in high demand, it is no wonder gas prices were around $3 a gallon.
    It is interesting to note that of the above factors, none of them have anything to do with “big oil.” Refining capacity and our dependence on foreign oil are actually problems our politician’s should be working towards addressing. While the issues are many and complex and in many cases outside of everyone’s control, it is dishonest for them to try to play off high gas prices on one factor.
One interesting fact to note is that other than the price of crude oil, the second highest cost of a gallon of gas is in taxes. On average the government takes about 19% directly through gas taxes. Once the taxes on the energy industry and boutique fuel requirements are taken into account, the Heritage Foundation estimates that this figure rises to around 28%.
     These politicians on both sides of the aisle that are accusing “big oil” of being the bane of society, are actually making more money from oil than the oil companies are. Is it good policy for politician’s to take an even higher amount than this by enacting the proposed “windfall profits” tax? This kind of tax assumes an industry is making an unfair amount of money and deserves an additional tax to redistribute their extra money through the government, back to consumers.
 Sure, “big oil” takes 19% of the cost of a gallon of gas, but that is not in anyway all profit. After they cover costs and taxes the oil companies make about 10 cents a gallon. According to the American Petroleum Institute (API), their major use of these profits is investments in their facilities and research and development. Investments like these are important in keeping the industry operating efficiently and innovating new ideas to reduce energy costs.
Still think an additional tax is a good idea? According to estimates by the Congressional Research Service, the last Windfall profits tax similar to the one being currently proposed in the 1980’s reduced domestic production and increased our dependence on foreign oil. Similar results could be expected from a new tax.
Reason being, the tax takes away money energy companies use to make their services more cost effective. As a consumer, we want energy companies to be as efficient as possible to save us money at the pump. Is it logical that the best way to go about that is taking research and development money out of private hands and giving it to the government?
It’s not that oil companies are soft, cuddly, corruption free and acting in the best interest of everyone, rather, politicians shouldn’t be able to get away with blaming high gas prices solely on these companies. While revenues increase as fuel costs go up creating the illusion of “record profits,” the after tax and oil cost reality is one that shows profit margins equal to or below other industries.
According to the API, oil and natural gas companies have averaged three-tenths of a penny in earnings on the dollar more than the average of all other American industries. However, their profits have consistently trailed industries like pharmaceutical, financial, telecommunications and many more. Also, by the time all the costs associated with producing energy are factored in, the reality is that “big oil” doesn’t make the kind of extraordinary, ridiculous, extra tax deserving profits that people say they are.
    Instead of beating up on oil companies, politician’s need to honestly discuss all the issues surrounding keeping gas prices low with their constituents. In reality, legitimate fixes to our supply problems like increased domestic drilling, building new refineries and developing other energy sources, are loaded with controversial issues. However, it is important to discuss all of the factors that go into high gas prices, not just the easy ones.
Our elected officials are smart people, and some of the actions they took recently are important steps in fixing our energy problems. Recent bill’s passed, one to expand drilling on the Gulf Coast, and another to make it easier to build new refineries, are steps in the right direction. However, it is up to intelligent consumers to hold them accountable for trying to scapegoat the penalty for their own inaction off on an American industry.  

Good Early Morning:

Welcome to my first blog post ever. People may never actually read this so technically its kind of weird that I am talking to myself in a public forum. But thats alright, I am over it. In case anyone should read it this blog is basically a place for me to put my thoughts on paper. I have a problem in persuasive writing that I get angry about something, write something, then come back later and read it and its never really that good. I figure that blogging will teach me to write effectively from the top of my head which I would like for a variety of reasons. I also think it will keep me well versed on my own opinions and thus by defending them in a public forum, (which no one else might read) I can decide if I sound persuasive enough to myself, and thus able to share my ideas with others. Another problem I hope to fix, I end up starting writing and then get halfway through and forget what I was trying to say. Like for example right now, I am wondering why am I even typing this and will maybe delete it all and dismiss it as stupid in a few minutes. Anyway, that is all for now I will be back with columns on everything from political stuff to more political stuff.