In President Obama’s 4th quarter SOTU address he mentioned America was “number one in oil and gas” and that “thanks to lower gas prices and higher fuel standards, the typical family this year should save $750 at the pump.” Although his words resonate with many working families, no political party can hardly take credit for the lower fuel prices. It’s because of the complexity of how crude oil arrives to your fuel tank, so lets break these costs down.
- Crude oil
- Distribution
- Manufacturing
- Federal & State Taxes
- Retailer costs
- Credit card charges
Of all of these, the cost of crude oil is the determinate factor that is reflected at the pump. Crude oil cost effects 68% of the retail cost and as witnessed lately, when crude oil drops below $50 a barrel, it drops the price to benefit the consumer but it also causes the profit margin to shrink for the crude oil producer. For American producers using new technologies, the profit loss is enough to virtually stop production, which was the intended affect by OPEC as they flooded the supply market as world demand became stagnant. OPEC has deep pockets and can keep the charade going for sometime, however, most industry analysts believe the crude price will rebound above $100 a barrel by 2016.
Just as certain as Johnny Cash sang country songs, the cost of gasoline will rise. Like many of you, I always questioned the overnight jump in prices at the pump in both gasoline and diesel. I thought this was massive conspiracy on the part of big oil and in a way, it is.
I’ll put this more in perspective. This cost per barrel is speculated upon by stock investors, betting on the profit to be made on the future cost of a barrel of oil. Gasoline and diesel producers in turn advise their retailer networks on the cost per gallon based on the stock market price. Since both gasoline and diesel are both produced from the same crude oil, this is why you often see the cost of oil raise slightly in the stock market then the next day see the cost rise at your local truck stop.
Let’s hope America does it part to be energy independent and even become an energy exporter, profiting American companies, and providing American jobs. This way we can control our prices effectively in a free market while enjoying a thriving economy.