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May Be A Price To Pay

2006-06-23 - 11:55 a.m.

Rant time. Brace yourselves.

Jesse Jackson is in Los Angeles this morning, protesting high gas prices at an Arco station near LAX. He's calling for a cap on gas prices and a windfall profits tax. He's also protesting against Arco's parent company, British Petroleum, for "not hiring enough minority distributors". BP responded with a list of minority employees.

When it comes to gas prices...IMHO Jackson, like quite a few folks, don't get it. Prices for a commodity like gasoline are affected by many factors. Here are just a few:

  • Finding the oil in the first place.
  • The cost of crude oil. Last I heard, it was over $70/barrel. It was under $20/barrel in the early 1990's.
  • Refining the crude oil to gasoline. This has been impacted by Katrina because some of the few refineries we have were knocked offline by Katrina. Other refineries were forced to pick up the slack and put off their maintenence schedules. Now that the damaged refineries are coming back online, the maintenence is there was no real increase in refining.
  • Boutique gas. Gasoline must be refined to different standards for different areas of the country due to different air quality standards. So if we run out in California, we can't get gas from Colorado.
  • Storage/transportation. This is also part of the problem with ethanol, which is added to gas. Ethanol has very specific storage requirements.
  • Taxes. The state of California tacks on about 69 cents PER GALLON to gas prices.

NOW profits are added in. The basic station manager gets about 7 to 9 cents a gallon. Compare that to what's going for taxes. So who's getting the windfall?

There was a bit in the news where Exxon's profits were $40 billion dollars. What most folks don't know is that's NOT the NET profit. Most of that money went back into the company. But of course nobody says that, because it wouldn't get people angry about "greedy corporations".

There's also the basic economic law of supply and demand. Industrialized nations like China and India have grown rapidly, and their oil use has skyrocketed. So there's less to go around.

So what can be done? More refineries would be nice. But due to legislation by the government (in the form of restrictions and so on) and protests by environmentalists, guess how many new refineries have been built in the last twenty years? None. Nada. Zero. Zilch. Zipparoonio. (Sorry, Gnort.)

We could also drill in more places here in the US for oil. However - again, mostly due to environmentalists but also due to tourism - there's a lot of pressure NOT to drill, even offshore. Here in CA, the tourism industry sucessfully lobbied against offshore drilling (even for natural gas) because it would spoil the ocean view.

It's a huge problem, but it's caused by MANY factors...not just the oil companies.

And President Bush has no control over most of these. He has no way of manipulating prices up or down. If he did, don't you think he would have done it and said, "See, we Republicans are good for the economy"?

Windfall profits are another story. I'll talk about that another day.

Oh, and another way to see how silly Jesse Jackson is:

The Arco station where he was protesting high prices had the LOWEST PRICE ON THAT BLOCK - by at least SIX CENTS.

What's wrong with this picture?


Rant over. Be seeing you.


1 comments so far

John - 2006-06-23 16:07:24 -
Sensible analysis, Dave. Of course, the point is, Jackson isn't interested in anything but promoting Jesse Jackson... Jeeze, an alleged "minister" who's nothing but a career politician masquerading as a "good guy liberal."


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